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The Effects of Banking Mergers on Loan Contracts

Paola Sapienza
The Journal of Finance
Vol. 57, No. 1 (Feb., 2002), pp. 329-367
Published by: Wiley for the American Finance Association
Stable URL: http://www.jstor.org/stable/2697842
Page Count: 39
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Abstract

This paper studies the effects of banking mergers on individual business borrowers. Using information on individual loan contracts between banks and companies, I analyze the effect of banking consolidation on banks' credit policies. I find that in-market mergers benefit borrowers if these mergers involve the acquisition of banks with small market shares. Interest rates charged by the consolidated banks decrease, but as the local market share of the acquired bank increases, the efficiency effect is offset by market power. Mergers have different distributional effects across borrowers. When banks become larger, they reduce the supply of loans to small borrowers.

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