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The Effects of Banking Mergers on Loan Contracts
Author(s) -
Sapienza Paola
Publication year - 2002
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/1540-6261.00424
Subject(s) - consolidation (business) , business , loan , market power , financial system , mergers and acquisitions , market share , finance , monetary economics , economics , market economy , monopoly
ABSTRACT This paper studies the effects of banking mergers on individual business borrowers. Using information on individual loan contracts between banks and companies, I analyze the effect of banking consolidation on banks' credit policies. I find that inmarket mergers benefit borrowers if these mergers involve the acquisition of banks with small market shares. Interest rates charged by the consolidated banks decrease, but as the local market share of the acquired bank increases, the efficiency effect is offset by market power. Mergers have different distributional effects across borrowers. When banks become larger, they reduce the supply of loans to small borrowers.