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Using Bank Mergers and Acquisitions to Understand Lending Relationships

Author

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  • Hetland, Ove Rein

    () (Dept. of Finance and Management Science, Norwegian School of Economics and Business Administration)

  • Mjøs, Aksel

    () (Dept. of Finance and Management Science, Norwegian School of Economics and Business Administration)

Abstract

We study how firm-bank lending relationships affect firms' access to and terms of credit. We use bank mergers and acquisitions (M&As) as exogenous events that affect lending relationships. Bank M&As lead to organisational changes at the involved banks, which may reduce the amount of soft information encompassed in the firm-bank relationship. Using a unique Norwegian dataset, which combines information on companies' bank accounts, annual accounts, bankruptcies, and bank M&As for the years 1997-2009, we find that domestic bank mergers increase interest rate margins by 0.24 percentage points for opaque small and medium sized rms, relative to less opaque firms. Since, due to information asymmetries, opaque firms are typically more dependent on bank lending relationships, our results indicate that these relationships are advantageous for such borrowers, and the destruction of a relationship during the merger process has adverse effects for the firm. Conversely, the results are not consistent with a lock-in effect due to an information monopoly by the relationship lender that on average increases a firm's borrowing costs over its life cycle. The results are robust to the inclusion of variables that control for e ects of market competition.

Suggested Citation

  • Hetland, Ove Rein & Mjøs, Aksel, 2011. "Using Bank Mergers and Acquisitions to Understand Lending Relationships," Discussion Papers 2011/13, Norwegian School of Economics, Department of Business and Management Science.
  • Handle: RePEc:hhs:nhhfms:2011_013
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    File URL: http://hdl.handle.net/11250/164174
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    References listed on IDEAS

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    1. Moshe Kim & Eirik Gaard Kristiansen & Bent Vale, 2012. "Life-Cycle Patterns of Interest-Rate Mark-Ups in Small-Firm Finance," Scandinavian Journal of Economics, Wiley Blackwell, vol. 114(2), pages 629-657, June.
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    More about this item

    Keywords

    Bank Mergers and Acquisitions; Lending Relationships;

    JEL classification:

    • G00 - Financial Economics - - General - - - General
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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