IDEAS home Printed from https://ideas.repec.org/a/bla/ecnote/v35y2006i1p49-62.html
   My bibliography  Save this article

Bank Mergers, Information, Default and the Price of Credit

Author

Listed:
  • Margarida Catalão‐ Lopes

Abstract

This paper addresses the impact of bank mergers on the price of firm credit, through an information channel. It is shown that, as bank mergers imply a wider spreading of information among banks concerning firms’ past defaults, they may increase the expected revenue from lending. Therefore, interest rates may decline as long as a sufficiently competitive environment is preserved. A fall in interest rates, in turn, reduces the incentives for firms to strategically default, which reinforces the downward effect on the price of credit. The results are a function of the level of information sharing and of the sensitivity of the default probability to the interest rate.

Suggested Citation

  • Margarida Catalão‐ Lopes, 2006. "Bank Mergers, Information, Default and the Price of Credit," Economic Notes, Banca Monte dei Paschi di Siena SpA, vol. 35(1), pages 49-62, February.
    • Handle: RePEc:bla:ecnote:v:35:y:2006:i:1:p:49-62
    DOI: 10.1111/j.0391-5026.2006.00158.x
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/j.0391-5026.2006.00158.x
    Download Restriction: no
    File URL: https://libkey.io/10.1111/j.0391-5026.2006.00158.x?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Hannan, Timothy H., 1991. "Bank commercial loan markets and the role of market structure: evidence from surveys of commercial lending," Journal of Banking & Finance, Elsevier, vol. 15(1), pages 133-149, February.
    2. Dwight M. Jaffee & Thomas Russell, 1976. "Imperfect Information, Uncertainty, and Credit Rationing," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 90(4), pages 651-666.
    3. Sharpe, Steven A, 1990. "Asymmetric Information, Bank Lending, and Implicit Contracts: A Stylized Model of Customer Relationships," Journal of Finance, American Finance Association, vol. 45(4), pages 1069-1087, September.
    4. Steven C. Salop, 1979. "Monopolistic Competition with Outside Goods," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 141-156, Spring.
    5. Jalal D. Akhavein & Allen N. Berger & David B. Humphrey, "undated". "The Effects of Megamergers on Efficiency and Prices: Evidence from a Bank Profit Function," Finance and Economics Discussion Series 1997-09, Board of Governors of the Federal Reserve System (U.S.), revised 10 Dec 2019.
    6. Robin A. Prager & Timothy H. Hannan, 1998. "Do Substantial Horizontal Mergers Generate Significant Price Effects? Evidence From The Banking Industry," Journal of Industrial Economics, Wiley Blackwell, vol. 46(4), pages 433-452, December.
    7. Diamond, Douglas W, 1989. "Reputation Acquisition in Debt Markets," Journal of Political Economy, University of Chicago Press, vol. 97(4), pages 828-862, August.
    8. Levy, David T & Reitzes, James D, 1992. "Anticompetitive Effects of Mergers in Markets with Localized Competition," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 8(2), pages 427-440, April.
    9. Fabio Panetta & Fabiano Schivardi & Matthew Shum, 2009. "Do Mergers Improve Information? Evidence from the Loan Market," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 41(4), pages 673-709, June.
    10. Greenbaum, Stuart I. & Kanatas, George & Venezia, Itzhak, 1989. "Equilibrium loan pricing under the bank-client relationship," Journal of Banking & Finance, Elsevier, vol. 13(2), pages 221-235, May.
    11. Perry, Martin K & Porter, Robert H, 1985. "Oligopoly and the Incentive for Horizontal Merger," American Economic Review, American Economic Association, vol. 75(1), pages 219-227, March.
    12. Bolton, Patrick & Scharfstein, David S, 1990. "A Theory of Predation Based on Agency Problems in Financial Contracting," American Economic Review, American Economic Association, vol. 80(1), pages 93-106, March.
    13. Kreps, David M. & Wilson, Robert, 1982. "Reputation and imperfect information," Journal of Economic Theory, Elsevier, vol. 27(2), pages 253-279, August.
    14. Petersen, Mitchell A & Rajan, Raghuram G, 1994. "The Benefits of Lending Relationships: Evidence from Small Business Data," Journal of Finance, American Finance Association, vol. 49(1), pages 3-37, March.
    15. Raymond Deneckere & Carl Davidson, 1985. "Incentives to Form Coalitions with Bertrand Competition," RAND Journal of Economics, The RAND Corporation, vol. 16(4), pages 473-486, Winter.
    16. Bester, Helmut, 1985. "Screening vs. Rationing in Credit Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 75(4), pages 850-855, September.
    17. repec:bla:jindec:v:46:y:1998:i:4:p:433-52 is not listed on IDEAS
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Janvier D. Nkurunziza, 2005. "Reputation and Credit without Collateral in Africa`s Formal Banking," Economics Series Working Papers WPS/2005-02, University of Oxford, Department of Economics.
    2. Allen N. Berger & Gregory F. Udell, 1994. "Lines of credit and relationship lending in small firm finance," Proceedings 52, Federal Reserve Bank of Chicago.
    3. Antje Brunner & Jan Pieter Krahnen, 2013. "Hold-up in multiple banking: evidence from SME lending," International Journal of Banking, Accounting and Finance, Inderscience Enterprises Ltd, vol. 5(1/2), pages 78-101.
    4. Elena Carletti & Philipp Hartmann & Giancarlo Spagnolo, 2007. "Bank Mergers, Competition, and Liquidity," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 39(5), pages 1067-1105, August.
    5. Curtiss, Jarmila, 2012. "Determinants of Financial Capital Use: Review of theories and implications for rural businesses," Factor Markets Working Papers 123, Centre for European Policy Studies.
    6. Mohamed Oudgou & Abdeslam Boudhar, 2023. "The bank–SME relationship and rationing risk reduction: an empirical study on survey data," SN Business & Economics, Springer, vol. 3(8), pages 1-39, August.
    7. Paola Sapienza, 2002. "The Effects of Banking Mergers on Loan Contracts," Journal of Finance, American Finance Association, vol. 57(1), pages 329-367, February.
    8. Kirschenmann, K., 2010. "The Dynamics in Requested and Granted Loan Terms when Bank and Borrower Interact Repeatedly," Other publications TiSEM 40d5005c-1626-4511-aa8a-f, Tilburg University, School of Economics and Management.
    9. Ginés Hernández-Cánovas & Pedro Martínez-Solano, 2007. "Effect of the Number of Banking Relationships on Credit Availability: Evidence from Panel Data of Spanish Small Firms," Small Business Economics, Springer, vol. 28(1), pages 37-53, January.
    10. Berger, Allen N. & Espinosa-Vega, Marco A. & Frame, W. Scott & Miller, Nathan H., 2011. "Why do borrowers pledge collateral? New empirical evidence on the role of asymmetric information," Journal of Financial Intermediation, Elsevier, vol. 20(1), pages 55-70, January.
    11. Foroughfard, Rasoul & Rahmati, Mohammad, 2019. "The Effect of Relationship Lending on Loan Contract Terms," Journal of Money and Economy, Monetary and Banking Research Institute, Central Bank of the Islamic Republic of Iran, vol. 14(2), pages 133-157, April.
    12. Chala, Alemu Tulu & Forssbaeck, Jens, 2018. "Does Collateral Reduce Loan-Size Credit Rationing? Survey Evidence," Working Papers 2018:36, Lund University, Department of Economics.
    13. Hans Degryse & Steven Ongena, 2005. "Distance, Lending Relationships, and Competition," Journal of Finance, American Finance Association, vol. 60(1), pages 231-266, February.
    14. Menkhoff, Lukas & Neuberger, Doris & Suwanaporn, Chodechai, 2006. "Collateral-based lending in emerging markets: Evidence from Thailand," Journal of Banking & Finance, Elsevier, vol. 30(1), pages 1-21, January.
    15. Berger, Allen N. & Scott Frame, W. & Ioannidou, Vasso, 2011. "Tests of ex ante versus ex post theories of collateral using private and public information," Journal of Financial Economics, Elsevier, vol. 100(1), pages 85-97, April.
    16. Allen N. Berger & Seth D. Bonime & Lawrence G. Goldberg & Lawrence J. White, 1999. "The dynamics of market entry: the effects of mergers and acquisitions on do novo entry and small business lending in the banking industry," Finance and Economics Discussion Series 1999-41, Board of Governors of the Federal Reserve System (U.S.).
    17. Marcello Pagnini & Paola Rossi & Valerio Vacca & Iftekhar Hasan & Liuling Liu & Haizhi Wang & Xinting Zhen, 2017. "Bank Market Power and Loan Contracts: Empirical Evidence," Economic Notes, Banca Monte dei Paschi di Siena SpA, vol. 46(3), pages 649-676, November.
    18. Elsas, Ralf & Krahnen, Jan Pieter, 1998. "Is relationship lending special? Evidence from credit-file data in Germany," Journal of Banking & Finance, Elsevier, vol. 22(10-11), pages 1283-1316, October.
    19. Degryse, Hans & Van Cayseele, Patrick, 2000. "Relationship Lending within a Bank-Based System: Evidence from European Small Business Data," Journal of Financial Intermediation, Elsevier, vol. 9(1), pages 90-109, January.
    20. Abbassi, Puriya & Bräuning, Falk & Fecht, Falko & Peydró, José-Luis, 2014. "Cross-border liquidity, relationships and monetary policy: Evidence from the Euro area interbank crisis," Discussion Papers 45/2014, Deutsche Bundesbank.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:ecnote:v:35:y:2006:i:1:p:49-62. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: http://www.blackwellpublishing.com/journal.asp?ref=0391-5026 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.