Staying, dropping, or switching: the impacts of bank mergers on small firms

Assessing the impacts of bank mergers on small firms requires separating borrowers with single versus multiple banking relationships and distinguishing the three alternatives of “staying, ” “dropping, ” and “switching ” of relationships. Single-relationship borrowers who “switch ” to another bank following a merger will be less harmed than those whose rela-tionship is “dropped ” and not replaced. Using Belgian data, we find that single-relationship borrowers of target banks are more likely than other borrowers to be dropped. We track postmerger performance and show that many dropped target-bank borrowers are harmed by the merger. Multiple-relationship borrowers are less harmed, as they can better hedge against relationship discontinuations. (JEL G21, G28, G34) Do bank mergers harm small firms? Do bank mergers result in lower credit availability for small firms? Although many articles have dealt with these ques-tions, relatively few have made use of microdata on bank–firm lending rela-tionships. Those that have done so have not been able to provide definitive answers or have faced data or methodological limitations that may call into question some of the insights established