Conference Paper

Do mergers improve information? evidence from the loan market

Abstract: We examine the informational effects of M&As by investigating whether bank mergers improve banks? abilities to screen their borrowers. By exploiting a dataset in which we observe a measure of a borrower?s default risk which the lenders observe only imperfectly, we find evidence of these informational improvements. Mergers lead to a closer correspondence between the default risk of each borrower and the interest rate on its loan: after a merger, risky borrowers experience an increase in the interest rate, while non-risky borrowers enjoy lower interest rates. This finding is robust with respect to a series of alternative explanations. Further results suggest that these information benefits derive from improvements in information processing resulting from the merger, rather than from explicit information sharing on individual customers among the merging parties.

Keywords: Bank mergers; Bank loans; Banking market;

Status: Published in Conference on Bank Structure and Competition (2004 : 40th) ; How do banks compete? strategy, regulation, and technology

Bibliographic Information

Provider: Federal Reserve Bank of Chicago

Part of Series: Proceedings

Publication Date: 2004

Number: 942

Pages: 369-411