The effects of a megabank merger on firm-Bank relationships and loan availability

Abstract

We examine the effects of the largest-ever bank merger in the world at the time on unlisted firms through their firm-bank relationships to find the following: (1) Firms that transacted with both of the merged banks prior to the merger saw their borrowing costs increase by 13 bps relative to those that transacted with only one of them. (2) Firms that transacted with only one of the two merged banks saw their borrowing costs increase by a margin of 15 bps and a decrease in the amount of loans relative to firms that transacted with neither. The deterioration in borrowing conditions is more pronounced for smaller firms. (3) Despite the deterioration in firms’ borrowing conditions, there is no evidence of a persistent decline in borrower firms’ investment or sales. (4) There is no significant difference in the extent that borrowing costs increased and loan amounts decreased between firms that transacted with the acquiring bank and those that transacted with the acquired bank.