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Bank Acquisitions and Decentralization Choices

Authors


Enrico Beretta, Senior Economist, Bank of Italy, Genoa Branch, Regional Economic Research Unit, via Dante 3, 16121 Genoa, Italy. Tel: +39 010 5491240. Fax: +39 010 5491319. E-mail: enrico.beretta@bancaditalia.it.

Abstract

In this paper, we investigate whether the banks’ involvement in acquisitions is correlated with the distribution of decision-making powers across hierarchical levels and loan officers’ turnover. To this end, we use survey data on the organization of small business lending, collected at the end of 2006 on a sample of about 300 Italian banks, combined with balance sheet data drawn from the Bank of Italy's Supervisory Reports. Focusing on acquisition effects and controlling for size, performance and organizational characteristics, we find evidence of higher decision-making powers in granting credit to SMEs for the main hierarchical layers of acquired banks. In particular, the powers of both the branch loan officer and the Chief Executive Officer are larger for target banks recently involved in a deal. Entering a group moves power delegated to both ends of the hierarchy within the target bank towards the higher levels shown by the bidder, to merge different cultures and credit policies. This effect appears immediately after the deal; it is persistent after a three-year period and it is stronger if the geographical reach of the target bank is well known by the bidder. However, higher decisional lending power within the target bank is balanced by increasing branch managers’ turnover consistently with the rising monitoring costs due to growing organizations’ higher risk of losing control over decisions.

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