Taking No Chances: Lender Concentration and Corporate Acquisitions
56 Pages Posted: 14 Jan 2020 Last revised: 1 Sep 2022
Date Written: July 28, 2022
Abstract
This paper shows that exogenous increases in a firm's lender concentration induced by bank mergers significantly reduce its propensity to pursue acquisitions, particularly large public deals. The effect is driven by mergers involving lead lenders, and mainly pronounced when lenders have less bargaining power ex-ante. This suggests that the result can be explained by increased lead-lender bargaining power beyond contractual provisions. Moreover, lender mergers reduce shareholder-value-enhancing acquisitions as well as value-destroying ones. Deals that do happen are more likely to target cash-rich firms with stable cash flows, while creating no additional shareholder value. The evidence suggests that managers tend to behave more conservatively amid higher lender concentration, sometimes at the expense of forgoing good growth opportunities for shareholders.
Keywords: Mergers and Acquisitions, Lender Monitoring, Creditor Governance, Bank Mergers
JEL Classification: G21, G30, G34
Suggested Citation: Suggested Citation