Taking No Chances: Lender Monitoring and Corporate Acquisitions
63 Pages Posted: 14 Jan 2020 Last revised: 10 Mar 2021
Date Written: January 10, 2021
Using mergers between firms' existing lenders as shocks to lead-lender monitoring incentives and bargaining power, I find that intensified lender monitoring significantly reduces treated firms' acquisitions. However, lender mergers reduce shareholder-value-enhancing acquisitions as well as value-destroying ones. Deals that do happen create no additional shareholder value and target cash-rich firms with stable incomes. Lender mergers also reduce leverage, sales/earnings volatility, and earnings management. All results are driven by less bank-dependent firms in which lenders are more subject to managerial discretion. The evidence suggests that lender monitoring mitigates managerial agency costs, yet induces behavior that can be over-conservative for shareholders.
Keywords: Mergers and Acquisitions, Lender Monitoring, Creditor Governance, Bank Mergers
JEL Classification: G21, G30, G34
Suggested Citation: Suggested Citation