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SMEs and bank lending relationships: the impact of mergers

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  • Hans Degryse
  • Nancy Masschelein
  • Janet Mitchell

Abstract

This paper studies the impact of bank mergers on firm-bank lending relationships using information from individual loan contracts in Belgium. We analyze the effects of bank mergers on the probability of borrowers maintaining their lending relationships and on their ability to continue tapping bank credit. The Belgian financial environment reflects a number of interesting features: high banking sector concentration; “in-market” mergers with large target banks; importance of large banks in providing external finance to SMEs; and low numbers of bank lending relationships maintained by SMEs. ; We find that bank mergers generate short-term and longer-term effects on borrowers' probability of losing a lending relationship and on credit availability. Mergers also have heterogeneous impacts across borrower types, including borrowers of acquiring and target banks, borrowers of differing size, borrowers with single versus multiple relationships, and borrowers with differing relationship intensities. Firms borrowing from acquiring banks are less likely to lose their lending relationship, while target bank borrowers are more likely to lose their relationship or see their credit availability harmed. Overlap borrowers – borrowing from two of the merging banks – are less likely to lose their relationship than firms borrowing from only one of the merging banks or firms borrowing from nonmerging banks.

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Bibliographic Info

Paper provided by Federal Reserve Bank of Chicago in its series Proceedings with number 993.

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Length: 148-165
Date of creation: 2005
Date of revision:
Publication status: Published in Conference on Bank Structure and Competition (2005 : 41th) ; The art of the loan in the 21st century : producing, pricing, and regulating credit
Handle: RePEc:fip:fedhpr:993

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Keywords: Bank mergers ; Loans; Personal;

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References

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  1. Jason Karceski & Steven Ongena & David C. Smith, 2000. "The impact of bank consolidation on commercial borrower welfare," International Finance Discussion Papers, Board of Governors of the Federal Reserve System (U.S.) 679, Board of Governors of the Federal Reserve System (U.S.).
  2. Fabio Panetta & Fabiano Schivardi & Matthew Shum, 2004. "Do mergers improve information? Evidence from the loan market," Temi di discussione (Economic working papers), Bank of Italy, Economic Research and International Relations Area 521, Bank of Italy, Economic Research and International Relations Area.
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  13. Houston, Joel F. & James, Christopher M. & Ryngaert, Michael D., 2001. "Where do merger gains come from? Bank mergers from the perspective of insiders and outsiders," Journal of Financial Economics, Elsevier, Elsevier, vol. 60(2-3), pages 285-331, May.
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Citations

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Cited by:
  1. Elena Carletti & Vittoria Cerasi & Sonja Daltung, 2006. "Multiple-bank lending: diversification and free-riding in monitoring," Working Papers, Università degli Studi di Milano-Bicocca, Dipartimento di Statistica 20061103, Università degli Studi di Milano-Bicocca, Dipartimento di Statistica, revised Nov 2006.
  2. Claessens, Stijn, 2006. "Competitive implications of cross-border banking," Policy Research Working Paper Series 3854, The World Bank.
  3. Thorsten Beck & Hans Degryse & Ralph De Haas & Neeltje van Horen, 2014. "When arm’s length is too far: relationship banking over the business cycle," Working Papers 169, European Bank for Reconstruction and Development, Office of the Chief Economist.
  4. Lev Ratnovski, 2013. "Competition Policy for Modern Banks," IMF Working Papers 13/126, International Monetary Fund.
  5. Stijn Claessens, 2009. "Competition in the Financial Sector," IMF Working Papers 09/45, International Monetary Fund.
  6. Fabi�n Duarte & Andrea Repetto & Rodrigo O. Vald�s, 2005. "The Effects on Firm Borrowing Costs of Bank M&As," Documentos de Trabajo, Centro de Economía Aplicada, Universidad de Chile 206, Centro de Economía Aplicada, Universidad de Chile.
  7. Alessandrini, Pietro & Calcagnini, Giorgio & Zazzaro, Alberto, 2008. "Asset restructuring strategies in bank acquisitions: Does distance between dealing partners matter?," Journal of Banking & Finance, Elsevier, Elsevier, vol. 32(5), pages 699-713, May.
  8. Kerl, Cornelia & Niepmann, Friederike, 2014. "What determines the composition of international bank flows?," Staff Reports, Federal Reserve Bank of New York 681, Federal Reserve Bank of New York.
  9. BEUSELINCK, Christof & DELOOF, Marc & VANSTRAELEN, Ann, 2011. "Corporate governance and cash policies of multinational corporations," Working Papers 2011020, University of Antwerp, Faculty of Applied Economics.

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