Aaltodoc publication archive (Aalto University institutional repository)
School of Business | Department of Finance | Finance | 2012
Thesis number: 12889
Relationship banking in Finnish small and medium-sized enterprise M&As
|Title:||Relationship banking in Finnish small and medium-sized enterprise M&As|
|Year:||2012 Language: eng|
|Department:||Department of Finance|
|Index terms:||rahoitus; financing; pankit; banks; pk-yritykset; smes; yrityskaupat; corporate acquisitions|
|Key terms:||Relationship banking, small and medium-sized enterprise, mergers and acquisitions|
The purpose of the study is to show whether Finnish small and medium-sized enterprises (SME) that are involved in M&A are provided bank financing with different terms than other SMEs. Another aspect is to study the rofitability of these SME M&A customers comparing them to other SME customers. Since an M&A occasion is typically a point of irregularity in the continuum of a firm’s ifecycle, firms might be willing to change their main bank at the same time. Thus, banks could have an incentive to provide financing with more attractive terms to M&A customers due to allure new customers or to maintain the existing ones. The study provides a completely new viewpoint to the field of relationship banking by linking it with small firm M&A.
The data set is unique in nature and it is provided by a large retail bank operating in Finland. The data include 563 loan level observations from 305 separate firms during 2007–2011. From the total of 563 loan observations, 88 are identified as M&A loans. In these cases the subject bank has provided financing for M&A purposes. Also, the loan price and profitability of the firms that have been granted an M&A loan are examined. Loan price is measured with loan premium and profitability with profit margin. The data are being analyzed using descriptive methods, univariate tests as well as multivariate OLS regressions.
The results provide strong indications that SME M&A customers do not obtain financing with better terms than other SME customer nor they are more profitable. I find that the subject bank is following rather strictly its loan granting policies in regard to M&A customers as well as non-M&A customers. M&A customers have to pay higher premium for their loans to compensate the higher risk that is related to discontinuous nature of M&A occasions. However, I find differences in the loan premiums and profitability of M&A firms and non-M&A firms when the duration of the relationship is being controlled. It seems that firms that take loans for M&A purposes benefit more from long lasting bank-firm relationship than non-M&A firms. With regard to existing findings on relationship banking, I find that the longer the duration of the banking relationship, the lower the loan premium on average. I find similar results when he scope of the relationship is being analyzed in terms of number of banking products.
Master's theses are stored at Learning Centre in Otaniemi.