Analysis of the Article - The Effects of Bank Mergers and Acquisitions on Small Business Lending - Research Paper Example

1. Bibliography Berger, A., Saunders, A., Scalise, J., & Udell, G. (1998). The effects of bank mergers and acquisitions on small business lending. Journal Of Financial Economics, 50(2), 187--229. 2. Introduction Liberalization in relation to geographic restrictions of banking institutions in the US from the 1970’s produced a quick amalgamation of the banking industry which lead to numerous mergers that consolidated two or more banks under one charter and acquisitions where the banks maintained their charters but were under the ownership of different holding companies. The connection between the size of banks and the tendency to lend small businesses money has been the subject of research but has not been considered at length. Simplistic analysis makes the assumption that lending tendencies are static and depend exclusively on the size of the bank while neglecting the important nature of mergers and acquisitions as dynamic events which may considerable changes in the conduct of the organization further than the simple static aggregation associated with the merging institutions. The study departs from a majority of the existing writings through the examination of the dynamic effect of mergers and acquisitions instead of arriving at assumptions simply from static deductions. It also departs from existing literature through modelling the overall effects of mergers and acquisitions on small business lending as a blend of several separate static and dynamic effects, and through the measurement of effects of mergers and acquisitions on lending by other banks in the local market. Ultimately, the research seeks to understand the how mergers and acquisitions empirically in banks affect the tendency to lend to small businesses through measuring static, restructuring, as well as direct effects of the numerous mergers and acquisitions of United States banks from the 70's to the early 90's. The external impact of the mergers and acquisitions on the lending associated will all the banks in their local markets, whether or not the banks are involved in mergers or acquisitions will be measured. The introductory statements were in agreement with the title and can be considered to be of an educational significance. The average leader can easily understand the issue that is being discussed in the paper without the need to go over the literature several times. It is easy to understand why the researcher felt the need to study the issues that are discussed in the introductory literature. The introduction was not restricted to the capabilities and the resources that the researcher has at his disposal. 3. Literature Review In this section of the article, the researcher cites clear review of various writings that is associated with the focal subject of the research. The author also uses a number of suitable references in the introductory part of the paper which greatly contribute to an overall understanding of the subject that is being discussed. These references and citations contribute to the authors and readers need to establish the issues that need to be investigated. The section has been titled in an appropriate manner that makes it easy understand and navigate to various parts of the paper with ease. 4. Four effects of Mergers and Acquisitions on bank lending This section discusses different impacts of merging and acquisitions on bank loaning that include static impact and three dynamic impacts. It addresses all the mentions effects one by one in a comprehensive manner while using empirical literature as a reference and main source of information. It also estimates the different effects of mergers and acquisitions to small business lending through considering internal and external effects. 5. An econometric model of lending and potential effects of M&As This section makes a presentation of the economic framework that will be used in the analysis of the sources of change in loan supply in relation to mergers and acquisitions. The section further develops equations that are specified in log-odds logit form. The log-odds are considered to be functions of the size, financial condition as well as competitive position of the banks and their entire organization, the variables that indicate mergers and acquisition activities in the recent past as well as other variables that describe the bank and the setting that may impact decisions in relation to lending. Equations are formulated to calculate the static effect, restructuring effect and direct effect, as well as the external effects in the subsequent parts of the section. 6. Empirical Results The estimated equations that were developed used data in the STBL sample that was associated with banks from 1980 to 1995 since it was possible to make a prediction of lending for all the banks from this sample as all the regressors were available from Call reports and other sources. The section concentrated on the dynamic effects since the static ones demonstrated only the dissimilarities that existed in the sample chosen. The effects of the mergers and acquisitions on the lending to small businesses were also examined by type, by absolute and relative size of the parties that took place as well as the external effects to develop the overall effect on small business lending. The methods and formulas that were used to arrive at the empirical results for this research were clearly explained. The different instruments and how they were used is also explained while providing reliable coefficients for all the possible variables in the research. The sample that was used was sufficient, and the discussion on the statistical technique is satisfactory. 7. Conclusion The conclusion to the paper was informed by the knowledge that the samples for this study were the banks that had undergone mergers and acquisitions between the late seventies and the early nineties. The final results of the research showed independence from the methods that were employed. The results associated with the mergers and acquisitions of the past may not be used as to come up with accurate projections of the effects of mergers and acquisitions in the future. The conclusions of this research were founded on the findings and the results which, were logically tested. 8. Overall Critique This research project was detailed especially for a research that was done for a journal. The research was written in a coherent manner and was well-organized while the literature review appropriately developed the situation at hand. In general, it is an interesting article to read and considerably contributes to research. Read More