Bank Mergers, Acquirer Choice and Small Business Lending: Implications for Community Investment
Charles A. Dice Working Paper No. 2020-12
52 Pages Posted: 3 Jun 2020 Last revised: 23 Sep 2021
Date Written: August 31, 2021
We examine the effects of bank merger and local market characteristics on local small business lending. Mergers involving small, in-state acquirers are positively associated with small business loan (SBL) originations in counties where target banks are located. Conversely, mergers involving large, out-of-state acquirers are associated with fewer SBL originations. The analysis suggests that the results are driven by acquirer’s choice of target. Small and in-state acquirers target banks that focus more on SBL and targets with strong relationships while large, out-of-state acquirers pursue better performing banks with stronger balance sheets and less focus on SBL. Results are particularly strong in counties with a large number of small firms. Post-merger activity supports banks expanding on their acquisition strategy decisions. The findings suggest that acquirer strategy is important for evaluating the impact of acquisitions on local community development and that one-size-fits-all policy solutions for bank mergers may not produce common local outcomes.
Keywords: Bank mergers, acquirer strategy, small business loans, community investment and small and community banks
JEL Classification: G20, G21, G34, O16
Suggested Citation: Suggested Citation