Taking No Chances: Lender Concentration and Corporate Acquisitions

56 Pages Posted: 14 Jan 2020 Last revised: 1 Sep 2022

See all articles by Luca X. Lin

Luca X. Lin

University at Buffalo (SUNY) - School of Management

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

Lin, Luca Xianran, Taking No Chances: Lender Concentration and Corporate Acquisitions (July 28, 2022). Journal of Corporate Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3507617 or http://dx.doi.org/10.2139/ssrn.3507617

Luca Xianran Lin (Contact Author)

University at Buffalo (SUNY) - School of Management ( email )

255 Jacobs Management Center
Buffalo, NY 14260
United States

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