The Impact of Bank Consolidation on Commercial Borrower Welfare

J. Karceski, S. Ongena, D.C. Smith

Research output: Working paperDiscussion paperOther research output

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Abstract

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 one percent in equity value when their bank is announced as a merger target.Small borrowers of target banks are especially hurt in large bank mergers, where they lose an average of about three percent.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 are forced out of relationships and suffer welfare losses as a result of bank mergers.
Original languageEnglish
Place of PublicationTilburg
PublisherFinance
Number of pages42
Volume2000-87
Publication statusPublished - 2000

Publication series

NameCentER Discussion Paper
Volume2000-87

Fingerprint

Bank consolidation
Bank mergers
Exit
Mergers
Announcement
Abnormal returns
Equity
Stock prices
Welfare loss
Termination
Propensity

Keywords

  • banks
  • mergers
  • bank lending

Cite this

Karceski, J., Ongena, S., & Smith, D. C. (2000). The Impact of Bank Consolidation on Commercial Borrower Welfare. (CentER Discussion Paper; Vol. 2000-87). Tilburg: Finance.
Karceski, J. ; Ongena, S. ; Smith, D.C. / The Impact of Bank Consolidation on Commercial Borrower Welfare. Tilburg : Finance, 2000. (CentER Discussion Paper).
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abstract = "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 one percent in equity value when their bank is announced as a merger target.Small borrowers of target banks are especially hurt in large bank mergers, where they lose an average of about three percent.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 are forced out of relationships and suffer welfare losses as a result of bank mergers.",
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Karceski, J, Ongena, S & Smith, DC 2000 'The Impact of Bank Consolidation on Commercial Borrower Welfare' CentER Discussion Paper, vol. 2000-87, Finance, Tilburg.

The Impact of Bank Consolidation on Commercial Borrower Welfare. / Karceski, J.; Ongena, S.; Smith, D.C.

Tilburg : Finance, 2000. (CentER Discussion Paper; Vol. 2000-87).

Research output: Working paperDiscussion paperOther research output

TY - UNPB

T1 - The Impact of Bank Consolidation on Commercial Borrower Welfare

AU - Karceski, J.

AU - Ongena, S.

AU - Smith, D.C.

N1 - Pagination: 42

PY - 2000

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N2 - 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 one percent in equity value when their bank is announced as a merger target.Small borrowers of target banks are especially hurt in large bank mergers, where they lose an average of about three percent.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 are forced out of relationships and suffer welfare losses as a result of bank mergers.

AB - 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 one percent in equity value when their bank is announced as a merger target.Small borrowers of target banks are especially hurt in large bank mergers, where they lose an average of about three percent.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 are forced out of relationships and suffer welfare losses as a result of bank mergers.

KW - banks

KW - mergers

KW - bank lending

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BT - The Impact of Bank Consolidation on Commercial Borrower Welfare

PB - Finance

CY - Tilburg

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Karceski J, Ongena S, Smith DC. The Impact of Bank Consolidation on Commercial Borrower Welfare. Tilburg: Finance. 2000. (CentER Discussion Paper).