Bank Acquisitions and Decentralization Choices

In this paper we investigate whether the banks' involvement in acquisitions is correlated with the distribution of decision-making powers in granting credit to SMEs across hierarchical levels and with loan officers' turnover. Controlling for size, performance and organizational characteristics, we find that the powers of both the branch loan officer and the Chief Executive officer are larger for acquired banks. Entering a group moves power delegated to both ends of the hierarchy within the target towards the higher levels shown by the bidder, to merge different cultures and credit policies. However, higher decisional lending power within the target bank is balanced by increasing branch managers' turnover, consistently with the rising monitoring costs due to growing organizations' higher risk of losing control over decisions