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Published June 2009 | public
Journal Article

Do Mergers Improve Information? Evidence from the Loan Market

Abstract

We examine the informational effects of M&As by investigating whether bank mergers improve banks' ability to screen borrowers. By exploiting a data set in which we observe a measure of a borrower's default risk that the lenders observe only imperfectly, we find evidence of these informational improvements. Mergers lead to a closer correspondence between interest rates and individual default risk: after a merger, risky borrowers experience an increase in the interest rate, while nonrisky borrowers enjoy lower interest rates. These informational benefits appear to derive from improvements in information processing resulting from the merger, rather than from explicit information sharing on individual customers among the merging parties. Our evidence suggests that part of these informational improvements stem from the consolidated banks using 'hard' information more intensively.

Additional Information

© 2009 The Ohio State University. Received May 3, 2007; and accepted in revised form October 23, 2008. We are grateful to Allen Berger, Antonio Ciccone, Bill Evans, Luigi Guiso, Mark Israel, Elizabeth Klee, Francesco Lippi, Steve Ongena, Nadia Soboleva, Victor Stango, Jeremy Stein, Matthew White, Luigi Zingales, and seminar participants at Arizona, Atlanta Fed, Bank of Italy, Boston Fed, Department of Justice, George Washington, Harvard, Maryland, the 2003 Winter Econometric Society Meetings in Washington, DC, the Bank of Italy–CEPR conference on Money and Banking, the NBER Industrial Organization Winter 2004 meetings, the 2004 IIOC meetings, and the 2004 AEA meetings in San Diego for comments. Special thanks to the editor and one referee. The opinions expressed are our own and do not necessarily reflect those of the Bank of Italy.

Additional details

Created:
August 21, 2023
Modified:
October 18, 2023