Skip navigation

The Role of Banks in Takeovers

Authors: Ivashina, Victoria
Nair, Vinay B.
Saunders, Anthony
Massoud, Nadia Ziad
Keywords: Banks;Corporate Governance;Takeovers;Conflicts of Interest;Intermediaries
Issue Date: Jan-2005
Series/Report no.: S-FI-05-01
Abstract: To transfer loans from one debtor to another debtor, banks might transmit borrower information which is collected in the lending process to potential acquirers. In this paper, we investigate the importance of banks in the effectiveness of the takeover mechanism and hence in corporate governance. Using unsolicited takeovers between 1992 and 2003, we find that bank lending intensity and bank client network (the number of firms that the bank deals with) have a significant and positive effect on the probability of a borrower firm becoming a target. We find that this effect is enhanced in cases where the target and acquirer have a relationship with the same bank and is robust to the inclusion of several firm characteristics including the presence of large external shareholders. Moreover, takeover completion rates are positively related to bank lending intensity. Finally, we find that the equity market views takeovers where the target and the acquirer deal with the same bank more positively relative to takeovers with no bank involvement. Overall, the evidence supports the view that banks increase the disciplining role of the market for corporate control.
Appears in Collections:Financial Institutions

Files in This Item:
File Description SizeFormat 
S-FI-05-01.pdf440.6 kBAdobe PDFView/Open

Items in FDA are protected by copyright, with all rights reserved, unless otherwise indicated.