Taking No Chances: Bank Mergers, Lender Concentration, and Corporate Acquisitions
56 Pages Posted: 14 Jan 2020 Last revised: 2 Jun 2020
Date Written: June 1, 2020
How does managerial behavior change under lender monitoring beyond contractual provisions? I show that exogenous increases in a firm’s lender concentration induced by bank mergers reduce its propensity to pursue a public takeover. The relationship is driven by mergers involving lead arrangers, who bear monitoring responsibilities. It becomes stronger for less bank-dependent firms with overinvestment tendencies, suggesting evidence of intensified lender monitoring over managerial discretion. However, lender mergers not only reduces value-destroying acquisitions but also value-enhancing ones. Acquisitions that do happen target cash-rich firms with low income volatility, while there is no evidence of additional shareholder value creation. These results indicate that increased lender concentration mitigates agency concerns, yet it can also lead to over-conservative firm behavior.
Keywords: Mergers and Acquisitions, Creditor Governance, Bank Mergers
JEL Classification: G23, G30, G34
Suggested Citation: Suggested Citation