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Do Mergers Improve Information? Evidence from the Loan Market

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  • FABIO PANETTA
  • FABIANO SCHIVARDI
  • MATTHEW SHUM

Abstract

We examine the informational effects of M&As by investigating whether bank mergers improve banks' ability to screen borrowers. By exploiting a data set in which we observe a measure of a borrower's default risk that the lenders observe only imperfectly, we find evidence of these informational improvements. Mergers lead to a closer correspondence between interest rates and individual default risk: after a merger, risky borrowers experience an increase in the interest rate, while nonrisky borrowers enjoy lower interest rates. These informational benefits appear to derive from improvements in information processing resulting from the merger, rather than from explicit information sharing on individual customers among the merging parties. Our evidence suggests that part of these informational improvements stem from the consolidated banks using "hard" information more intensively. Copyright (c) 2009 The Ohio State University No claim to original US government works.

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Bibliographic Info

Article provided by Blackwell Publishing in its journal Journal of Money, Credit and Banking.

Volume (Year): 41 (2009)
Issue (Month): 4 (06)
Pages: 673-709

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Handle: RePEc:mcb:jmoncb:v:41:y:2009:i:4:p:673-709

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