Working Paper: CEPR ID: DP4961
Authors: Fabio Panetta; Fabiano Schivardi; Matthew Shum
Abstract: We examine the informational effects of M&As by investigating whether bank mergers improve banks? ability to screen borrowers. By exploiting a dataset in which we observe a measure of a borrower?s default risk that the lenders observe only imperfectly, we find evidence of these informational improvements. Mergers lead to a closer correspondence between interest rates and individual default risk: after a merger, risky borrowers experience an increase in the interest rate, while non-risky borrowers enjoy lower interest rates. These informational benefits appear to derive from improvements in information processing resulting from the merger, rather than from explicit information sharing on individual customers among the merging parties. Our evidence suggests that part of these informational improvements stem from the consolidated banks using ?hard? information more intensively.
Keywords: asymmetric information; banking; mergers
JEL Codes: G21; L15
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| mergers (G34) | improved screening abilities (I24) |
| mergers (G34) | closer correspondence between interest rates and individual default risks (E43) |
| closer correspondence between interest rates and individual default risks (E43) | riskier borrowers experience higher interest rates (G21) |
| closer correspondence between interest rates and individual default risks (E43) | non-risky borrowers benefit from lower rates (G21) |
| improvements in information processing (D83) | enhanced screening abilities (C52) |
| mergers (G34) | increased slope of interest rate profile (E43) |
| increased slope of interest rate profile (E43) | improved screening abilities (I24) |
| shorter bank-firm relationships (G21) | increased slope of interest rate profile (E43) |
| smaller share of firm's total credit (G32) | increased slope of interest rate profile (E43) |
| acquiring banks (G21) | improved information processing capabilities (D83) |
| acquired banks (G21) | improved information processing capabilities (D83) |