Are Bank Merger Characteristics Important for Local Community Investment?

50 Pages Posted: 3 Jun 2020 Last revised: 13 Jan 2021

See all articles by Bernadette A. Minton

Bernadette A. Minton

Ohio State University (OSU) - Department of Finance

Alvaro G. Taboada

Mississippi State University

Rohan Williamson

Georgetown University - McDonough School of Business

Date Written: December 30, 2020

Abstract

Using a sample of 3,964 bank mergers during the 1999-2016 period, we examine the effects of merger and local market characteristics on local small business lending through banks’ dependence on soft information acquisition relative to technology driven lending. Mergers involving small or in-state acquirers are positively associated with small business loan (SBL) originations in counties where the target bank has a presence, particularly in counties with a larger number of small firms. In contrast, mergers involving large acquirers are associated with fewer SBL originations while those involving out-of-state acquirers have no impact on SBL originations. Analyses of acquirer bank SBL origination activity post-merger corroborate our county-level results. Post-merger, small bank acquirers increase in SBL originations, while large acquirers do not. Examining the behavior of local competitor banks shows that competitors of small acquirers decrease SBL originations, partially offsetting the positive effect associated small bank acquirers. Taken together, our findings underscore the importance of soft information acquisition in small business lending and suggest one-size-fits-all policy solutions are not likely to lead to common outcomes at the local level. Encouraging mergers by small banks and by in-state acquirers can positively affect small business lending and community investment, particularly in counties with a large fraction of small firms.

Keywords: Bank mergers, small business loans, community investment and small and community banks

JEL Classification: G20, G21, G34, O16

Suggested Citation

Minton, Bernadette A. and Taboada, Alvaro G. and Williamson, Rohan G., Are Bank Merger Characteristics Important for Local Community Investment? (December 30, 2020). Fisher College of Business Working Paper No. 2020-03-012, Charles A. Dice Working Paper No. 2020-12, Georgetown McDonough School of Business Research Paper No. 3611721, Available at SSRN: https://ssrn.com/abstract=3611721 or http://dx.doi.org/10.2139/ssrn.3611721

Bernadette A. Minton (Contact Author)

Ohio State University (OSU) - Department of Finance ( email )

2100 Neil Avenue
Columbus, OH 43210-1144
United States
614-688-3125 (Phone)
614-292-2359 (Fax)

Alvaro G. Taboada

Mississippi State University ( email )

310-H McCool Hall
PO Box 9580
Mississippi State, MS 39762
United States
662-325-6716 (Phone)
662-325-1977 (Fax)

Rohan G. Williamson

Georgetown University - McDonough School of Business ( email )

3700 O Street, NW
Washington, DC 20057
United States
202-687-2284 (Phone)
202-687-4031 (Fax)

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