Client Firms and Bank Mergers: Positive Wealth Effect of Bank Mergers on Distressed Firms

Using the event study method, Karceski et al. (2000) and Shin et al. (2003) determined that investors expected bank mergers to adversely impact some of the borrowing firms. Earlier studies on the effects of banking merger on borrower have not sufficiently considered the relationship between the economic conditions of the borrowers and the wealth effect of the bank mergers. Using the events study method, we investigated whether the news of several bank mergers between Japanese banks affected the market value of financially distressed borrowers. We found that news of bank mergers brought about a positive wealth effect on financially distressed borrowers.