The Competitive Effect of a Bank Megamerger on Credit Supply

36 Pages Posted: 2 May 2016 Last revised: 10 Apr 2017

Henri Fraisse

Banque de France - Autorité de contrôle Prudentiel

Johan Hombert

HEC Paris - Finance Department

Mathias LÉ

Autorité de Contrôle Prudentiel et de Résolution (ACPR)

Date Written: April 2017

Abstract

We study the effect of a merger between two large banks on credit market competition. We identify the competitive effect of the merger using matched loan-level and firm-level data and exploiting variation in the merging banks' market overlap across local lending markets. On the credit market side, we find a reduction in lending, in particular through termination of relationships. In the average market, bank credit decreases by 2.7%. On the real side, firm exit increases by 4%, whereas firms that do not exit and firms that start up experience no adverse real effect on investment and
employment.

Keywords: Bank megamerger; Banking competition; Credit Supply; Merger

JEL Classification: G21; L13

Suggested Citation

Fraisse, Henri and Hombert, Johan and LÉ, Mathias, The Competitive Effect of a Bank Megamerger on Credit Supply (April 2017). HEC Paris Research Paper No. FIN-2016-1146. Available at SSRN: https://ssrn.com/abstract=2773311 or http://dx.doi.org/10.2139/ssrn.2773311

Henri Fraisse

Banque de France - Autorité de contrôle Prudentiel ( email )

61, rue Taitbout
Paris, 75436
France

Johan Hombert (Contact Author)

HEC Paris - Finance Department ( email )

1 rue de la Liberation
Jouy-en-Josas Cedex, 78351
France

Mathias LÉ

Autorité de Contrôle Prudentiel et de Résolution (ACPR) ( email )

61, rue Taitbout
Paris, 75436
France

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