Using Bank Mergers and Acquisitions to Understand Lending Relationships

Using a unique Norwegian dataset, which combines information on companies’ bank accounts, annual accounts, bankruptcies, and bank mergers and acquisitions (M&As), we find that such M&As increase interest rate margins for nontransparent small and medium sized firms. There is little effect for more transparent companies. Since, due to information asymmetries, nontransparent firms are typically more dependent on bank lending relationships, our results indicate that these relationships are advantageous for such borrowers, and, conversely, the results are not consistent with the presence of a detrimental lock-in effect due to an information monopoly by the relationship lender. Date: This version: February 15, 2010.