The Impact of Bank Consolidation on Commercial Borrower Welfare





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    • *Karceski is at the University of Florida, Ongena is at Tilburg University and CEPR, and Smith is at the University of Virginia, McIntire School of Commerce. We are especially grateful for the comments of an anonymous referee. We also thank Hans Degryse, Abe de Jong, Mark Flannery, Aloke Ghosh, Rick Green (editor), Robert Hauswald, Uli Hege, Dale Henderson, Hamid Mehran, Werner Neus, Michael Ryngaert, Joao Santos, Matti Suominen, Rudi Vander Vennet, Marc Zenner, and workshop participants at the BI/Norges Bank Conference on Corporate Governance at Banks (Oslo), CEPR/BBVA Conference on Universal Banking (Madrid), IESE Conference on European M&As (Barcelona), SUERF Conference (Brussels), FMA Meetings (Toronto), CEPR Summer Conference, EARIE Conference (Lausanne), EUNIP Conference (Tilburg), German Finance Association (Konstanz) Meetings, American University, the Federal Reserve Board, the Federal Reserve Banks of Dallas and New York, the Norwegian School of Management, Stockholm Institute for Financial Research, Washington University-St. Louis, and Tilburg University for providing helpful comments. Bernt Arne Ødergaard provided assistance with the Norwegian stock price data, while Morten Josefsen and Ellen Jacobsen collected information on some of the original merger announcements. Ongena received partial support for this research from the Fund for Economic Research at Norges Bank and the Netherlands Organization for Scientific Research (NWO). Any errors are our own.


We estimate the impact of bank merger announcements on borrowers' stock prices for publicly traded Norwegian firms. Borrowers of target banks lose about 0.8% in equity value, while borrowers of acquiring banks earn positive abnormal returns, suggesting that borrower welfare is influenced by a strategic focus favoring acquiring borrowers. Bank mergers lead to higher relationship exit rates among borrowers of target banks. Larger merger-induced increases in relationship termination rates are associated with less negative abnormal returns, suggesting that firms with low switching costs switch banks, while similar firms with high switching costs are locked into their current relationship.