The Effects of Bank Mergers and Acquisitions on Credit Availability: Evidence from Corporate Data

A large literature on the effects of bank consolidation focuses on direct efficiency gains for participating banks and market power effects. The special nature of credit markets suggests that indirect informational effects for borrowers may be generated by bank consolidation. In particular, borrowers that depend on relationship-based lending may face a reduction in credit availability because soft information gets lost if their lenders are involved in a merger. In this study we investigate the full effect of bank mergers on the availability of credit for corporate borrowers by examining a large sample of privately owned firms. We analyze the impact of bank mergers and acquisitions over time on the volume of credit and credit lines, controlling for firms characteristics. Following the literature on investment and financing constraints, we also test whether banking consolidation affects the investment-cash flow sensitivity of firms. We examine in detail the effects of bank mergers and acquisitions on firms that are small, rely on few banks, and have a high credit risk. JEL classification: G21, G34.