The Impact of Bank Consolidation on Commercial Borrower Welfare

By Jason Karceski, Steven R. G. Ongena, David C. Smith. 2005

208 citations recorded by the source corpus.

We estimate the impact of bank merger announcements on borrowers' stock prices for publicly traded Norwegian firms. In addition, we analyze how bank mergers influence borrower relationship termination behavior and relate the propensity to terminate to borrower abnormal returns. We obtain four main results. First, on average borrowers lose about 1 percent in equity value when their bank is announced as a merger target. Small borrowers of target banks are especially hurt in mergers between two large banks, where they lose an average of about 3 percent. Small target borrowers are not harmed, and appear to even gain, from mergers between small banks. Second, bank mergers lead to higher relationship exit rates for three years after a bank merger, and small bank mergers lead to larger increases in exit rates than large mergers. Third, target borrower abnormal returns are positively related to pre-merger exit rates, indicating that firms that find it easier to switch banks are less harmed when their bank merges. Fourth, we find weak evidence that target borrowers with large merger-induced increases in exit rates are more negatively affected by bank merger announcements, suggesting that target borrowers can be forced out of relationships and suffer welfare losses as a result of bank mergers.

Subfields: Accounting, Finance

View Paper: https://www.semanticscholar.org/paper/d0d8c883472b902942229b67ac1b2d2d6c5d7134

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Citations in the corpus

A more complete conceptual framework for SME finance (2006, background): “generally unfavorable effects from market power (e.g., Elsas 2005, Karceski, Ongena, and Smith 2005,”
Lending Relationships and Information Rents: Do Banks Exploit Their Information Advantages? (2010, unknown): “[29] Karceski, Jason, Steven Ongena, and David Smith, 2005, The Impact of Bank Consolidation on”
Do Small Businesses Still Prefer Community Banks (2013, background): “…find both favorable effects (e.g., Petersen and Rajan 1995, Cetorelli and Gambera 2001, Bonaccorsi di Patti and Dell’Ariccia 2004, Cetorelli 2004) and unfavorable effects (e.g., Black and Strahan 2002, Berger, Hasan, and Klapper 2004, Karceski, Ongena, and Smith 2005, Cetorelli and Strahan 2006).”
Determinants of Commercial Banks¡¯ Lending Behavior in Nigeria (2011, unknown): “(Carletti et al, 2006; Ongene & Smith, 2000; Karceski et al, 2004; Degryse et al, 2004).”
'Lending by Example': Direct and Indirect Effects of Foreign Banks in Emerging Markets (2012, unknown): “Ongena and Smith (2001), Karceski et al. (2005), and Ongena and Smith (2000) for example also rely on primary bank relationships reported in a Norwegian firm”
A More Complete Conceptual Framework for Financing of Small and Medium Enterprises (2005, result): “The empirical results are mixed, with some studies finding generally unfavorable effects from market power (e.g., Elsas 2005, Karceski, Ongena, and Smith 2005, Cetorelli and Strahan 2006), and others finding favorable effects (e.g., Petersen and Rajan 1995, Cetorelli and Gambera 2001, Bonaccorsi di…”
The value of durable bank relationships: evidence from Korean banking shocks $ (2002, unknown): “Finally, Karceski, Ongena, and Smith (2000) analyze the share price responses of Norwegian borrowers to bank merger announcements during the period 1983-1996 by separating borrowers according to whether they are affiliated with the acquiring, target, or rival banks.”
Does Market Size Structure Affect Competition? The Case of Small Business Lending (2007, unknown): “Recent empirical literature on this link has provided mixed results (e.g., Cetorelli and Gambera 2001, Zarutskie 2003, Scott and Dunkelberg 2004, Elsas 2005, Fisher 2005, Karceski, Ongena, and Smith 2005).”
Bank Market Power and SME Financing Constraints (2009, unknown): “Ongena and Smith (2001) and Karceski, et al. (2005) find evidence inconsistent with the “lock-in” element of bank relationships.”
Explaining M&A Success in European Banks (2004, unknown): “only a subset of mergers creates or destroys value, across the analysed sub-samples (e.g., DeLong, 2001; Karceski et al., 2000; Kane, 2000; Cornett et al., 2000; Toyne, 1998; Subrahmanyam et al., 1997; Pilloff, 1996; Siems, 1996; Hudgins and Seifert, 1996).”
Winners or Losers? The Effects of Banking Consolidation on Corporate Borrowers (2007, unknown): “In addition, borrowers that experience positive abnormal returns after merger announcement are those with low switching costs, suggesting that the adverse effects of bank mergers may be restricted to borrowers that cannot switch easily across banks (Karceski, Ongena, and Smith 2002).”