Do mergers improve information? Evidence from the loan market

We examine the informational effects of M&As by investigating whether bank mergers improve banks� ability to screen borrowers. By exploiting a dataset in which we observe a measure of a borrower�s default risk that the lenders observe only imperfectly, we find evidence of these informational improvements. Mergers lead to a closer correspondence between interest rates and individual default risk: after a merger, risky borrowers experience an increase in the interest rate, while non-risky borrowers enjoy lower interest rates. This finding is robust with respect to a series of alternative explanations. Further results suggest that these information benets derive from improvements in information processing resulting from the merger, rather than from explicit information sharing on individual customers among the merging parties.