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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’ abilities to screen their borrowers. By exploiting a dataset in which we observe a measure of a borrower’s default risk which the lenders observe only imperfectly, we find evidence of these informational improvements. Mergers lead to a closer correspondence between the default risk of each borrower and the interest rate on its loan: after a merger, risky borrowers experience an increase in the interest rate, while non-risky borrowers enjoy lower interest rates. This finding is robust with respect to a series of alternative explanations. Further results suggest that these information benefits derive from improvements in information processing resulting from the merger, rather than from explicit information sharing on individual customers among the merging parties.

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Bibliographic Info

Paper provided by Federal Reserve Bank of Chicago in its series Proceedings with number 942.

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Length: 369-411
Date of creation: 2004
Date of revision:
Publication status: Published in Conference on Bank Structure and Competition (2004 : 40th) ; How do banks compete? strategy, regulation, and technology
Handle: RePEc:fip:fedhpr:942

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Keywords: Bank mergers ; Bank loans ; Banking market;

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References

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