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The Effects of a Megabank Merger on Firm-Bank Relationships and Borrowing Costs

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  • UCHINO Taisuke
  • UESUGI Iichiro

Abstract

Using a unique dataset of non-listed firms that identifies the banks with which firms transact, we examine the effects of the largest-ever bank merger in Japan—that between Bank of Tokyo-Mitsubishi (BTM) and UFJ Bank (UFJ) in 2005. We focus on how the merger affected firms through their firm-bank relationships. Specifically, we examine whether there are any differences in how the availability of loans evolved over time for firms that, prior to the merger, either transacted with both of the merged banks, with one of them, or with none. We find the following: (1) Firms that had transacted with both BTM and UFJ saw their borrowing costs increase by 40bp relative to those that had transacted with neither. (2) Firms that transacted with one of the two banks saw their borrowing costs increase by a smaller but still significant margin of 20bp relative to those that had transacted with neither. And (3) we do not find a significant difference in the extent that borrowing costs increased between firms that transacted with the acquiring bank (BTM) and those that transacted with the acquired bank (UFJ). These results suggest that the bank merger increased firms' borrowing costs partly through an exogenous decrease in the number of firm-bank relationships and partly through changes in the organizational structure of the merged bank, including a consolidation of the branch network.

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Paper provided by Research Institute of Economy, Trade and Industry (RIETI) in its series Discussion papers with number 12022.

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Length: 46 pages
Date of creation: Apr 2012
Date of revision:
Handle: RePEc:eti:dpaper:12022

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  1. Uchida, Hirofumi & Udell, Gregory F. & Watanabe, Wako, 2008. "Bank size and lending relationships in Japan," Journal of the Japanese and International Economies, Elsevier, vol. 22(2), pages 242-267, June.
  2. Flores, Carlos A. & Mitnik, Oscar A., 2009. "Evaluating Nonexperimental Estimators for Multiple Treatments: Evidence from Experimental Data," IZA Discussion Papers 4451, Institute for the Study of Labor (IZA).
  3. Sakai, Koji & Uesugi, Iichiro & Watanabe, Tsutomu, 2008. "Firm Age and the Evolution of Borrowing Costs: Evidence from Japanese Small Firms," PIE/CIS Discussion Paper 354, Center for Intergenerational Studies, Institute of Economic Research, Hitotsubashi University.
  4. Degryse, Hans & Van Cayseele, Patrick, 2000. "Relationship Lending within a Bank-Based System: Evidence from European Small Business Data," Journal of Financial Intermediation, Elsevier, vol. 9(1), pages 90-109, January.
  5. Angelini, P. & Di Salvo, R. & Ferri, G., 1998. "Availability and cost of credit for small businesses: Customer relationships and credit cooperatives," Journal of Banking & Finance, Elsevier, vol. 22(6-8), pages 925-954, August.
  6. Emilia Bonaccorsi Di Patti & Giorgio Gobbi, 2007. "Winners or Losers? The Effects of Banking Consolidation on Corporate Borrowers," Journal of Finance, American Finance Association, vol. 62(2), pages 669-695, 04.
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