Winners or Losers? the Effects of Banking Consolidation on Corporate Borrowers

A number of studies suggest that banks involved in mergers and acquisitions tend to reallocate their loan portfolio generating welfare effects for borrowers of the just-merged institutions. Gains from bank mergers may be offset by increases in market power and negative informational effects on the availability of credit of borrowers that depend on relationship-based lending. On the other hand, other borrowers may benefit if bank mergers increase efficiency and credit capacity and they can extract some of the gains. We test these hypotheses employing a large sample of privately owned firms and analyze if their credit availability is affected by the involvement of one or more of their lenders in a merger or an acquisition. Following the literature on investment and financing constraints, we also test whether banking consolidation affects the investment-cash flow sensitivity of borrowers of banks that have merged. Finally, we focus on the effects of bank mergers and acquisitions on firms that should be more sensitive to disruptions in credit markets i.e. those that are small, rely on few banks, have high observed credit risk. JEL Classification: G21, G34.