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Do Mergers Improve Information? Evidence from the Loan Market

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  • Panetta, Fabio
  • Schivardi, Fabiano
  • Shum, Matthew

Abstract

We examine the informational effects of M&As by investigating whether bank mergers improve banks’ ability to screen borrowers. By exploiting a dataset 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 non-risky 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.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 4961.

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Date of creation: Mar 2005
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Handle: RePEc:cpr:ceprdp:4961

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Keywords: asymmetric information; banking; mergers;

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