How Have Borrowers Fared in Banking Mega-mergers?

Carow, Kenneth A.; Kane, Edward J.; Narayanan, Rajesh P.

doi:10.24148/wp2005-09

Working Paper

How Have Borrowers Fared in Banking Mega-mergers?

Abstract: Previous studies of event returns surrounding bank mergers show that banks gain value in megamergers and additional value when they absorb in-market competitors. A portion of these gains has been traced to the increased bargaining power of banks vis-a-vis regulators and other competitors. We demonstrate that increased bargaining power of megabanks adversely affects loan customers of the acquired institution. Wealth losses are greater when loan customers are credit-constrained, the loan customer is smaller, or the acquisition is an in-market deal. These findings reinforce complaints that the ongoing consolidation in banking has unfavorably affected the availability of credit for smaller firms and especially capital-constrained firms.

https://doi.org/10.24148/wp2005-09