Bank Market Power and Firm Performance

Abstract

Does market power of banks affect firm performance? To answer this question we examine 25,236 syndicated loan facilities granted between 2000 and 2010 by 296 banks to 9,029 US non-financial firms. Accounting for both observed and unobserved bank and firm heterogeneity, we find that firms that were recently poorly performing obtain loans from banks with more market power. However, in the year after loan origination market power positively affects firm performance, but only if it is not too high. Our estimates thus suggest that bank market power can facilitate access to credit by poorly-performing firms, yet at the same time also boosts the performance of the firms that obtain credit.

Who needs big banks? The real effects of bank size on outcomes of large US borrowers

“…Qian and Yeung (2015) find that the effect of bank financing on governance depends on the efficiency in the banking sector. Delis et al (2016) find that bank market power positively affects the performance of firms.…”

“…In Column (1), we report the results for the period 2000-2010, following Delis et al (2016). This is to avoid the effects arising from regulatory reforms before 2000 (Gramm-Leach-Bliley…”

“…The pre-loan average (over [t − n, t − 1] years) of the dependent variable is included as a control. As Dass and Massa (and alsoDelis et al, 2016) point out, the autocorrelation issue that arises in panels when the lagged dependent variable is on the right hand side is eliminated in this set-up because the sampling is event-based. We are not using a true panel, since loan facilities are unique and not repeated in time.…”

“…In each column we show the second stage coefficients on Banksize for each dependent variable. In Column (1), we report the results for the period 2000-2010, following Delis, Kokas and Ongena (2016). In Column (2), instead of taking the average size of the banks in the syndicate, we use the size of the largest bank in the syndicate as our measure of Banksize.…”

'What's the Use of Having a Reputation If You Can't Ruin It Every Now and Then?' Regulatory Enforcement Actions on Banks and the Structure of Loan Syndicates

“…In this study, we closely link the lead arranger's reputation with the regulator's signal on the lead arranger's compliance with regulatory law on the books. Specifically, if a principal arranger is found to have engaged in legal or regulatory misconduct, especially for important reasons related to financial safety and soundness, then she receives an enforcement action that is publicly announced (Delis et al, 2017). It is then natural to assume that such actions reveal that the lead arranger has certain undesired characteristics, most notably risky behavior, leading to increased moral hazard for participants.…”