Banking Consolidation and Bank-Firm Credit Relationships: The Role of Geographical Features and Relationship Characteristics

47 Pages Posted: 3 May 2013

Date Written: February 27, 2013

Abstract

Using data on single credit relationships, the paper shows that after a merger or an acquisition, involving two or more banks which had previously jointly financed the same firm, the share of credit granted to the client by the consolidated intermediaries moderately decreases over three years. This does not necessarily imply a reduction of the overall credit granted to the firm, because after consolidations involving its lending banks, the probability of diversifying the mix of lenders increases. Some of the features of credit relationships or the characteristics of borrowing firms, which reduce information asymmetries and the cost of soft information, seem to partially offset the decrease in the share of credit provided by consolidated banks. Indeed, if the company is geographically close to a branch of its financing bank, or if it belongs to an industrial district, the more exclusive credit relationships between the parties seem to mitigate or offset the diversification of credit relationships generated by M&As. By contrast, if a firm is in financial distress or located in the South of Italy – a geographical area with greater negative context externalities – diversification is significantly enhanced.

Keywords: relationship banking, mergers and acquisitions, firms’ agglomerations

JEL Classification: G21, G34, L14, L22

Suggested Citation

Beretta, Enrico and Del Prete, Silvia, Banking Consolidation and Bank-Firm Credit Relationships: The Role of Geographical Features and Relationship Characteristics (February 27, 2013). Bank of Italy Temi di Discussione (Working Paper) No. 901. Available at SSRN: https://ssrn.com/abstract=2259587 or http://dx.doi.org/10.2139/ssrn.2259587

Enrico Beretta

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Silvia Del Prete (Contact Author)

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

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