How Have Borrowers Fared in Banking Mega-Mergers?
Kenneth A. Carow, Edward J. Kane, Rajesh Narayanan
NBER Working Paper No. 10623
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-à-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.
Published: Carow, Kenneth A., Edward J. Kane and Rajesh P. Narayanan. "How Have Borrowers Fared In Banking Megamergers?," Journal of Money, Credit and Banking, 2006, v38(3,Apr), 821-836.
This paper was revised on July 28, 2006