Bank lenders as matchmakers? Evidence from when acquirers and targets share a common lender

Abstract

We examine whether M&A transactions between firms sharing a common lender differ in important ways from those without common lenders. Consistent with the view that common lenders may improve information flow between firms, we find that firms have a higher likelihood of being a target when they share a common lender with the acquirer, and the resulting abnormal announcement return for the combined entity is higher. Additionally, these deals result in reductions in borrowing costs, and are associated with lower investment bank advisory fees. However, the effect of having a common lender is asymmetric: the effect is positive for bidders, but not for targets, with the average target also receiving a lower acquisition premium. The results are robust to controlling for several lender characteristics and are not driven by lenders acting as advisors. Overall, we find that bank lenders serve an important role in M&A transactions, but their role may not be entirely bias-free.