Nowhere else to go: Determinants of bank-firm relationship discontinuations after bank mergers

This paper investigates firm-bank relationship changes in the context of bank mergers. We find that firms are less likely to switch and more likely to drop their bank relationship after bank mergers. Importantly, in less competitive environments, measured by Lerner index and HHI, relationship drops are more likely. If mergers decrease competition, the existing consolidation wave in banking could thus induce increasingly harmful bank-firm relationship drops. Firms are also more likely to switch and less likely to drop their bank relationships if they are more creditworthy, measured by their z-score and available collateral.

Automated summary

This paper examines changes in firm-bank relationships in the context of bank mergers. The study finds that firms are less likely to switch banks but more likely to drop their bank relationships after mergers. Importantly, relationship drops are more likely in less competitive environments. If mergers lead to decreased competition, the ongoing consolidation wave in the banking industry may result in increasingly harmful bank-firm relationship drops. Furthermore, firms that are more creditworthy are more likely to switch banks and less likely to drop their bank relationships.