Taking No Chances: Bank Mergers, Lender Concentration, and Corporate Acquisitions

56 Pages Posted: 14 Jan 2020 Last revised: 2 Jun 2020

See all articles by Luca Xianran Lin

Luca Xianran Lin

University of Navarra, IESE Business School

Date Written: June 1, 2020

Abstract

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

Lin, Luca Xianran, Taking No Chances: Bank Mergers, Lender Concentration, and Corporate Acquisitions (June 1, 2020). Available at SSRN: https://ssrn.com/abstract=3507617 or http://dx.doi.org/10.2139/ssrn.3507617

Luca Xianran Lin (Contact Author)

University of Navarra, IESE Business School ( email )

Avenida Pearson, 21
IESE Business School, H-300
Barcelona, Barcelona 08034
Spain

HOME PAGE: http://lucaxlin.com

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