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Taking no chances: Lender concentration and corporate acquisitions

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  • Lin, Luca X.

Abstract

This paper shows that exogenous increases in a firm’s lender concentration induced by bank mergers significantly reduce its propensity to pursue acquisitions, particularly large public deals. The effect is driven by mergers involving lead lenders, and mainly pronounced when lenders have less bargaining power ex-ante. This suggests that the result can be explained by increased lead-lender bargaining power beyond contractual provisions. Moreover, lender mergers reduce shareholder-value-enhancing acquisitions as well as value-destroying ones. Deals that do happen are more likely to target cash-rich firms with stable cash flows, while creating no additional shareholder value. The evidence suggests that managers tend to behave more conservatively amid higher lender concentration, sometimes at the expense of forgoing good growth opportunities for shareholders.

Suggested Citation

  • Lin, Luca X., 2022. "Taking no chances: Lender concentration and corporate acquisitions," Journal of Corporate Finance, Elsevier, vol. 76(C).
  • Handle: RePEc:eee:corfin:v:76:y:2022:i:c:s0929119922001274
    DOI: 10.1016/j.jcorpfin.2022.102284
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    More about this item

    Keywords

    Creditor governance; Lender concentration; Mergers and acquisitions;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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