Nowhere Else to Go: Determinants of Bank–Firm Relationship Discontinuations after Bank Mergers

Abstract

We investigate what determines the decision to change or terminate a bank–firm relationship. We find bank competition and available collateral of the firm to be important factors. We also provide new evidence that firms that are able to add a bank relationship following a merger exhibit much stronger post-merger performance. Our findings have significant implications for anti-trust policy in banking markets. As more mergers lead to higher banking market concentration, subsequent mergers are more harmful to firms, because they lack options to switch to different banks, often resulting in harmful bank–firm relationship discontinuations.

Keywords: bank mergers, bank-firm relationship, competition