Bank Dependence And Bank Financing In Corporate M&A

We examine the impact of bank financing of M&As, and its associated benefits and costs to borrowing acquirers. We find that bank-financed deals have higher acquirer announcement returns relative to other cash deals, but such a value certification effect exists only for bank-dependent acquirers. In contrast to the conventional view that bank-dependent firms are more susceptible to hold-up by banks, banks do not impose higher loan pricing, but instead grant even more favorable non-pricing loan contract terms to bank-dependent acquirers relative to non-bank-dependent acquirers. Our findings highlight the specialness of banks to bank-dependent borrowers in certifying their decision making as well as a less-explored positive side of bank dependence for borrowers, i.e., a substitution between banks’ informational advantage and loan contract stringency.