Are bank merger characteristics important for local community investment?

Using a sample of 3,964 bank mergers during the 1999-2016 period, we examine the differential effects of merger and local market characteristics on local small business lending through banks' dependence on soft information acquisition relative to technology driven lending. Mergers involving small or in-state acquirers are positively associated with small business loan (SBL) originations in counties where the target bank has a presence; the results are stronger in counties with a larger number of small firms. In contrast, mergers involving large acquirers are associated with fewer SBL originations while those involving out-of-state acquirers have no impact on SBL originations. Analyses of acquirer bank SBL origination activity post-merger corroborate our county-level results. Post-merger lending by local competitor banks decreases in mergers involving large acquirers, partially explaining the adverse effect of mergers of large acquirers. Taken together, our findings underscore the importance of soft information acquisition in small business lending and suggest one-size-fits-all policy solutions are not likely to lead to common outcomes at the local level. Encouraging mergers by small banks and by in-state acquirers may positively affect small business lending and community investment