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The Competitive Effect of a Bank Megamerger on Credit Supply

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  • Hombert, Johan
  • Fraisse, Henri
  • Lé, Mathias

Abstract

We study the effect of a merger between two large banks on credit market competition. We identify the competitive effect of the merger using matched loan-level and firm-level data and exploiting variation in the merging banks' market overlap across local lending markets. On the credit market side, we find a reduction in lending, in particular through termination of relationships. In the average market, bank credit decreases by 2.7%. On the real side, firm exit increases by 4%, whereas firms that do not exit and firms that start up experience no adverse real effect on investment and employment.

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  • Hombert, Johan & Fraisse, Henri & Lé, Mathias, 2016. "The Competitive Effect of a Bank Megamerger on Credit Supply," HEC Research Papers Series 1146, HEC Paris.
    • Handle: RePEc:ebg:heccah:1146
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    12. Kouzez, Marc, 2023. "Political environment and bank performance: Does bank size matter?," Economic Systems, Elsevier, vol. 47(1).
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    More about this item

    Keywords

    Bank megamerger; Banking competition; Credit Supply; Merger;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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