Bank Mergers and Syndicate Structure

Abstract

This study examines whether and how syndicated loan structure is affected by the merger activity of lead banks. While the ownership structure of a syndicate is influenced by a lead bank’s syndication relationships with participating lenders, these syndication relationships can radically change in response to critical events, such as a merger involving the lead bank. I predict and document that after a lead bank’s merger is complete, the renewal of a syndication relationship between the past participants and the lead is less likely, and the merged banks hold a greater portion of new loans and form more concentrated syndicates. I also find that the influence of lead banks’ mergers on the share of loans retained is conditional on participating lenders’ prior lending relationship with the borrower, borrower transparency, and lead banks’ reputation. Overall, my empirical results suggest that a lead bank’s merger activity influences its syndication relationships with participants, which function as a mechanism to reduce information asymmetry among the syndicate members.