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How Have Borrowers Fared in Banking Megamergers?

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  • Carow, Kenneth A.
  • Kane, Edward J.
  • Narayanan, Rajesh P.

Abstract

Previous studies of event returns surrounding bank mergers show that banks gain value in megamergers and additional value when they absorb in-market competitors. A portion of these gains has been traced to the increased bargaining power of banks vis-a-vis regulators and other competitors. We demonstrate that increased bargaining power of megabanks adversely affects loan customers of the acquired institution. Wealth losses are greater when loan customers are credit-constrained, the loan customer is smaller, or the acquisition is an in-market deal. These findings reinforce complaints that the ongoing consolidation in banking has unfavorably affected the availability of credit for smaller firms and especially capital-constrained firms.

Suggested Citation

  • Carow, Kenneth A. & Kane, Edward J. & Narayanan, Rajesh P., 2006. "How Have Borrowers Fared in Banking Megamergers?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 38(3), pages 821-836, April.
  • Handle: RePEc:mcb:jmoncb:v:38:y:2006:i:3:p:821-836
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    File URL: http://dx.doi.org/10.1353/mcb.2006.0039
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    Cited by:

    1. James McNulty & Marina Murdock & Nivine Richie, 2013. "Are commercial bank lending propensities useful in understanding small firm finance?," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 37(4), pages 511-527, October.
    2. Elijah Brewer & Julapa Jagtiani, 2013. "How Much Did Banks Pay to Become Too-Big-To-Fail and to Become Systemically Important?," Journal of Financial Services Research, Springer;Western Finance Association, vol. 43(1), pages 1-35, February.
    3. Elijah Brewer & Julapa Jagtiani, 2007. "How much would banks be willing to pay to become "too-big-to-fail" and to capture other benefits?," Research Working Paper RWP 07-05, Federal Reserve Bank of Kansas City.
    4. Fabián Duarte & Andrea Repetto & Rodrigo O. Valdés, 2005. "The Effects on Firm Borrowing Costs of Bank M&As," Documentos de Trabajo 206, Centro de Economía Aplicada, Universidad de Chile.
    5. Lili Xie, 2007. "Bank Consolidation and Loan Pricing," Working Papers 200706, Ball State University, Department of Economics, revised Nov 2007.
    6. 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.
    7. Christian Weller, 2009. "Credit Access, the Costs of Credit and Credit Market Discrimination," The Review of Black Political Economy, Springer;National Economic Association, vol. 36(1), pages 7-28, March.
    8. Cowan, Arnold R. & Salotti, Valentina, 2015. "The resolution of failed banks during the crisis: Acquirer performance and FDIC guarantees, 2008–2013," Journal of Banking & Finance, Elsevier, vol. 54(C), pages 222-238.
    9. H. Fraisse & J. Hombert & M. Le, 2015. "The Competitive Effects of a Bank Megamerger on Access to Credit," Débats économiques et financiers 18, Banque de France.
    10. Francis, Bill & Hasan, Iftekhar & Wang, Haizhi, 2014. "Banking deregulation, consolidation, and corporate cash holdings: U.S. evidence," Journal of Banking & Finance, Elsevier, vol. 41(C), pages 45-56.
    11. Hans Degryse & Nancy Masschelein & Janet Mitchell, 2009. "Staying, dropping, or switching : the impacts of bank mergers on small firms," Working Paper Research 179, National Bank of Belgium.
    12. Dimitris Chronopoulos & Claudia Girardone & John Nankervis, 2013. "How Do Stock Markets in the US and Europe Price Efficiency Gains from Bank M&As?," Journal of Financial Services Research, Springer;Western Finance Association, vol. 43(3), pages 243-263, June.
    13. Yoshiaki Ogura & Hirofumi Uchida, 2014. "Bank Consolidation and Soft Information Acquisition in Small Business Lending," Journal of Financial Services Research, Springer;Western Finance Association, vol. 45(2), pages 173-200, April.
    14. Miyajima, Hideaki & Yafeh, Yishay, 2007. "Japan's banking crisis: An event-study perspective," Journal of Banking & Finance, Elsevier, vol. 31(9), pages 2866-2885, September.
    15. 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.
    16. Pérez Montes, Carlos, 2014. "The effect on competition of banking sector consolidation following the financial crisis of 2008," Journal of Banking & Finance, Elsevier, vol. 43(C), pages 124-136.

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    • G2 - Financial Economics - - Financial Institutions and Services

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