HEC Research Papers Series,
HEC Paris

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.

Keywords: Bank megamerger; Banking competition; Credit Supply; Merger

JEL-codes: G21; L13

26 pages, May 2, 2016

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