This thesis consists of three essays on banking and loan financing. In the first essay, we investigate loan price in mergers and acquisitions (M&As), using hand-matched loan information for a sample of 512 U.S. M&A transactions. We find the relative size of a deal constitutes a prominent determinant of the loan price measured by the all-in-drawn spread (AIDS). This result is robust to several specifications that address endogeneity concerns. Further analysis demonstrates higher AIDS is associated with lower post-transaction performance. We posit that deal size is a major concern for lenders because it involves greater information risk, greater business complexity, and more integration difficulties. Further, the loan price correctly factors in the risk of poor post-transaction performance. In the second essay, we investigate the relation between the bank competition and the tightness of financial covenants in the loan contracts. Using statewide bank branch intensity as the proxy of bank competition during 1995 -- 2013, we find that the financial covenant tightness is positively associated with the bank competition. We explain the association as the banks offer credit to riskier borrowing firms under intensified competition and thus use more restrictive financial covenants to manage the risks of the loan portfolios. Our empirical evidence verifies the argument by showing negative association between the bank competition and the quality of borrowing firms. We also investigate the cross-sectional heterogeneities of the positive association between bank competition and the tightness of financial covenants. In the third essay, using data on the federal declaration of disasters in contiguous U.S. counties and the presence of brick and mortar bank branches in each county, we show that a greater presence of bank branches reduces the disastersâ€™ impairment on the number of employees, total annual payroll, and the number of establishments in the local business sector. The presence of bank branches also mitigates the disastrous impact on overall local employment and personal wealth. Our findings demonstrate that the physical presence of banking service enhances the resilience of a local economy to disasters significantly, in line with the findings of the previous literature that banks respond to the uprise in credit demand in disaster-affected areas.
|Date of Award
|1 Aug 2020
- The University of Manchester
|Arif Khurshed (Supervisor) & Ning Gao (Supervisor)