Working Paper: CEPR ID: DP5061
Authors: Hans Degryse; Nancy Masschelein; Janet Mitchell
Abstract: This paper studies the impact of bank mergers on firm-bank lending relationships using information from individual loan contracts in Belgium. We analyse the effects of bank mergers on the probability of borrowers maintaining their lending relationships and on their ability to continue tapping bank credit. The Belgian financial environment reflects a number of interesting features: high banking sector concentration; ?in-market? mergers with large target banks; importance of large banks in providing external finance to SMEs; and low numbers of bank lending relationships maintained by SMEs.We find that bank mergers generate short-term and longer-term effects on borrowers' probability of losing a lending relationship and on credit availability. Mergers also have heterogeneous impacts across borrower types, including borrowers of acquiring and target banks, borrowers of differing size, borrowers with single versus multiple relationships, and borrowers with differing relationship intensities. Firms borrowing from acquiring banks are less likely to lose their lending relationship, while target bank borrowers are more likely to lose their relationship or see their credit availability harmed. Overlap borrowers ? borrowing from two of the merging banks ? are less likely to lose their relationship than firms borrowing from only one of the merging banks or firms borrowing from non-merging banks.
Keywords: bank lending relationships; bank mergers; SME loans
JEL Codes: G21; G32
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Bank Mergers (G21) | Borrowers from Merging Banks are Less Likely to Lose Lending Relationships (G21) |
| Single Relationship Firms Borrowing from Merging Banks (G21) | More Likely to Lose Lending Relationships (G21) |
| Borrowers from Target Banks (G21) | More Likely to Lose Relationships (J12) |
| Borrowers from Acquiring Banks (G21) | Greater Stability in Lending Relationships (G21) |
| Overlap Borrowers (G51) | Lower Probability of Losing Relationships (J12) |
| Higher Proportions of Total Loans from Given Bank (G21) | Lower Termination Rates (E43) |
| Single Relationship Firms Borrowing from Target Banks (G21) | Negative Impacts on Loan Volumes (F65) |