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Bank consolidation and new business formation

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  • Francis, Bill
  • Hasan, Iftekhar
  • Wang, Haizhi

Abstract

As the trend of bank consolidation activities continues to grow in the US and globally, the debate on the impact of such consolidation on small business credits and activities are still inconclusive. Building on the existing research [Berger, A.N., Saunders, A., Scalise, J.M., Udell, G.F., 1998. The effects of bank mergers and acquisitions on small business lending. Journal of Financial Economics 50, 187-229]; [Black, S.E., Strahan, P.E., 2002. Entrepreneurship and bank credit availability. Journal of Finance LVII (6), 2807-2833], this paper investigates the effects of the actual intensity of bank consolidation on the formation of new businesses in the US local markets. Evidence portrays that in the short-run, the overall intensity of bank consolidation is negatively related to the rate of new business formation, and this negative relationship is primarily driven by consolidations initiated by large acquirers. On the contrary, consolidations between small-to-medium sized banks show a positive impact on new business development and these results are consistent even when the M&As are distinguished with respect to in-market or out-of-market acquirers initiating the deals. However, two years after the consolidations, the evidence reveals a positive and significant impact on the rate of new business formation in the local markets for consolidations initiated by large in-market acquirers.

Suggested Citation

  • Francis, Bill & Hasan, Iftekhar & Wang, Haizhi, 2008. "Bank consolidation and new business formation," Journal of Banking & Finance, Elsevier, vol. 32(8), pages 1598-1612, August.
  • Handle: RePEc:eee:jbfina:v:32:y:2008:i:8:p:1598-1612
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    Cited by:

    1. de la Torre, Augusto & Martínez Pería, María Soledad & Schmukler, Sergio L., 2010. "Bank involvement with SMEs: Beyond relationship lending," Journal of Banking & Finance, Elsevier, vol. 34(9), pages 2280-2293, September.
    2. Michiel Bijlsma & Andrei Dubovik, 2014. "Banks, Financial Markets and Growth in Developed Countries: a Survey of the empirical literature," CPB Discussion Paper 266, CPB Netherlands Bureau for Economic Policy Analysis.
    3. Iftekhar Hasan & Nada Kobeissi & Haizhi Wang & Mingming Zhou, 2015. "Banking Structure, Marketization, and Small Business Development: Regional Evidence From China," Pacific Economic Review, Wiley Blackwell, vol. 20(3), pages 487-510, August.
    4. Pietro Alessandrini & Andrea Filippo Presbitero & Alberto Zazzaro, 2008. "Global Banking and Local Markets," Mo.Fi.R. Working Papers 4, Money and Finance Research group (Mo.Fi.R.) - Univ. Politecnica Marche - Dept. Economic and Social Sciences.
    5. Sohn, Wook, 2010. "Market response to bank relationships: Evidence from Korean bank reform," Journal of Banking & Finance, Elsevier, vol. 34(9), pages 2042-2055, September.
    6. Morgan, Horatio M., 2013. "Credit Unions, Consolidation and Business Formation: Evidence from Canadian provinces," MPRA Paper 52327, University Library of Munich, Germany.
    7. Morgan, Horatio M., 2013. "Credit Unions, Consolidation and Small Business Lending: Evidence from Canada," MPRA Paper 50813, University Library of Munich, Germany.
    8. Robert DeYoung & Douglas Evanoff & Philip Molyneux, 2009. "Mergers and Acquisitions of Financial Institutions: A Review of the Post-2000 Literature," Journal of Financial Services Research, Springer;Western Finance Association, vol. 36(2), pages 87-110, December.
    9. John S. Howe & Thibaut G. Morillon, 2017. "Do Mergers and Acquisitions Affect Information Asymmetry in the Banking Sector?," NFI Working Papers 2017-WP-01, Indiana State University, Scott College of Business, Networks Financial Institute.

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