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.
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This paper was revised on July 28, 2006
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