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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.

Suggested Citation

  • Fabio Panetta & Fabiano Schivardi & Matthew Shum, 2004. "Do mergers improve information? evidence from the loan market," Proceedings 942, Federal Reserve Bank of Chicago.
  • Handle: RePEc:fip:fedhpr:942
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    More about this item

    Keywords

    Bank mergers ; Bank loans ; Banking market;

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality

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