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Cross-Market Effects of Consolidation: Evidence from Banking

Author

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  • Andrew Bird
  • Ding Du
  • Stephen A Karolyi

Abstract

The U.S. banking sector had nearly 70% fewer banks in 2022 relative to 1989, primarily because of mergers. We develop a methodology to estimate cross-market spillover effects of bank mergers and test whether the operations of incumbents facing consolidating competitors in one market are affected in other markets. We find that nonmerging banks within a market that are one standard deviation more exposed to mergers in other markets increase deposits by 2.1% relative to their less exposed competitors. Our methodology may be applied elsewhere to assess the aggregate impacts of industry consolidation and illustrates challenges with product-based or geographic market definitions.

Suggested Citation

  • Andrew Bird & Ding Du & Stephen A Karolyi, 2024. "Cross-Market Effects of Consolidation: Evidence from Banking," The Review of Corporate Finance Studies, Society for Financial Studies, vol. 13(4), pages 999-1029.
    • Handle: RePEc:oup:rcorpf:v:13:y:2024:i:4:p:999-1029.
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    File URL: http://hdl.handle.net/10.1093/rcfs/cfae012
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    More about this item

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • L40 - Industrial Organization - - Antitrust Issues and Policies - - - General

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