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MARKET POWER, BANK MEGAMERGERS, AND THE WELFARE OF BANK BORROWERS

Authors


  • We would like to thank participants at seminars at Tilburg University and Erasmus University Rotterdam in the Netherlands, particularly Steven Ongena, Hans Degryse, Lieven Baele, Fabiana Penas, Piet Duffues, Frank de Jong, Peter Rosenboom, Marieke van der Poel, Arjen Mulder, and Chris Huurman. Helpful comments have been received from Jaap Bos, Johan Knif, and Michael Koetter. We also appreciate the helpful suggestions of the reviewer, Matthew Billett, and the editor, Jayant Kale. We thank Michael Roberts for providing us with the DealScan/Compustat matching database. Naturally, all remaining errors are the sole responsibility of the authors.

Abstract

We assess the effects on the welfare of corporate borrowers of the recent wave of bank consolidations in the United States that has produced a small number of very large banks. Our evidence from a sample of more than 3,000 commercial borrowers from banks involved in large mergers indicates that the wealth effects on these borrowers are highly negative, statistically significant, and economically important. These negative investor perceptions seem to be driven largely by the expectation of changes in banks’ market power resulting from the mergers.

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