Bank Mergers, REIT Loan Pricing and Takeover Likelihood
The impact of bank mergers on Real Estate Investment Trust (REIT) loan pricing and takeover likelihood is assessed. REITs that lose their primary banking relationship due to bank mergers pay higher interest rates on future borrowings. Bank consolidation reduces bank competition for REIT loans which affects loan pricing. Moreover, based on randomly matched samples of REITs, the results imply that firms losing their agent banks due to bank mergers and those with limited access to bank debt are more likely to be acquired while REITs associated with acquiring banks are more likely to acquire other firms. Additional analysis of the 92 merged REITs reveals that 33% of the target REITs’ banks are merged with their REIT acquirers’ banks prior to the REIT mergers while 67% of the target REITs share at least one major bank with their acquirer.
KeywordsBank mergers REITs Loan pricing Takeover likelihood
We thank Juan Esteban Carranza, Hans Degryse, Mike Milhelbergel, Stephen Malpezzi, Seow Eng Ong, Joseph Ooi, François Ortalo-Magné, Martin Ruckes, Timothy Riddiough, James Seward, James Shilling, the anonymous referee, and the seminar participants at the NUS-APRU Conference (National University of Singapore) and the University of Wisconsin-Madison for their helpful comments. We also appreciate financial support from the Jerome Bain Real Estate Institute at Florida International University and the Puelicher Center for Banking Education at University of Wisconsin-Madison. The usual disclaimer applies.
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