Wednesday, August 18, 2010
Posted by D. Daniel Sokol
Pedro P. Barros, Universidade Nova de Lisboa, Diana Bonfim, Banco de Portugal, Moshe Kim, Universitat Pompeu Fabra - Faculty of Economic and Business Sciences, University of Haifa - Department of Economics, and
Nuno C. Martins, Bank of Portugal, Universidade Nova de Lisboa provide Counterfactual Analysis of Bank Mergers.
ABSTRACT: Estimating the impact of bank mergers requires a framework distinguishing endogenous changes in market structure and conduct from exogenous changes. Conventionally, the literature relies on differential analysis, considering market structure as exogenous by using concentration indexes such as the HHI. We introduce an econometric methodology relying on a structural model of the credit market from which we derive a counterfactual scenario of what would have happened if mergers had not occurred. We find that mergers increased firms' access to credit, but had an opposite effect on households. Moreover, we find that mergers led to a widespread decrease in interest rates.