Using Bank Mergers and Acquisitions to Understand Lending Relationships

Ove Rein Hetland () and Aksel Mjøs ()
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Ove Rein Hetland: Dept. of Finance and Management Science, Norwegian School of Economics and Business Administration, Postal: NHH , Department of Finance and Management Science, Helleveien 30, N-5045 Bergen, Norway, http://www.nhh.no/Default.aspx?ID=11398
Aksel Mjøs: Dept. of Finance and Management Science, Norwegian School of Economics and Business Administration, Postal: NHH , Department of Finance and Management Science, Helleveien 30, N-5045 Bergen, Norway, http://www.nhh.no/Default.aspx?ID=11212

No 2011/13, Discussion Papers from Norwegian School of Economics, Department of Business and Management Science

Abstract: We study how firm-bank lending relationships affect firms' access to and terms of credit. We use bank mergers and acquisitions (M&As) as exogenous events that affect lending relationships. Bank M&As lead to organisational changes at the involved banks, which may reduce the amount of soft information encompassed in the firm-bank relationship. Using a unique Norwegian dataset, which combines information on companies' bank accounts, annual accounts, bankruptcies, and bank M&As for the years 1997-2009, we find that domestic bank mergers increase interest rate margins by 0.24 percentage points for opaque small and medium sized rms, relative to less opaque firms. Since, due to information asymmetries, opaque firms are typically more dependent on bank lending relationships, our results indicate that these relationships are advantageous for such borrowers, and the destruction of a relationship during the merger process has adverse effects for the firm. Conversely, the results are not consistent with a lock-in effect due to an information monopoly by the relationship lender that on average increases a firm's borrowing costs over its life cycle. The results are robust to the inclusion of variables that control for e ects of market competition.

Keywords: Bank Mergers and Acquisitions; Lending Relationships (search for similar items in EconPapers)
JEL-codes: G00 G30 G34 (search for similar items in EconPapers)
Pages: 41 pages
Date: 2011-08-31
New Economics Papers: this item is included in nep-ban, nep-cfn, nep-com, nep-cta and nep-fmk
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