Title: Borrowers' response to bank consolidation in India

Authors: Nivedita Sinha; Saandra Nandakumar

Addresses: Birla Institute of Technology and Science, Pilani, Hyderabad Campus, India ' Birla Institute of Technology and Science, Pilani, Hyderabad Campus, India

Abstract: We assess the response of publicly-traded borrower-firms to bank consolidation announcements in India using an event study methodology. The results of our paper suggest that borrower-firms, on average, respond positively to the news of bank consolidation; however, the response is heterogeneous. We investigate if this variation in response depends on the primary bank's characteristics and borrower-firms' characteristics. The paper finds that borrowers of merging banks with a high ratio of gross non-performing assets (GNPAs) react more positively to the consolidation announcement than borrower-firms of relatively low GNPAs banks. The paper also suggests that large borrower-firms, and business groups affiliated firms, respond more positively to the bank consolidation announcement. The results of cross-sectional regression analysis imply that borrower-firms' characteristics such as profitability, size, business group affiliation, firm's age, and primary bank's GNPAs are important determinants to the sensitivity of cumulative abnormal returns to bank consolidation news.

Keywords: financial economics; financial intermediation; financial markets; event study; government policy and regulation; public sector banks; borrower-firms; bank consolidation; abnormal returns; business groups; India.

DOI: 10.1504/IJEPEE.2025.145417

International Journal of Economic Policy in Emerging Economies, 2025 Vol.21 No.1, pp.39 - 63

Received: 15 Nov 2020
Accepted: 03 Aug 2021
Published online: 01 Apr 2025 *

Full-text access for editors Full-text access for subscribers Purchase this article Comment on this article