Geographic Diversification of Commercial Banks and Inter-region M&As

Drawing on the data of inter-province bank branches and mergers and acquisitions (M&As), this paper explores the impact of geographic diversification of commercial banks on real investments. We find that the set-up of inter-province bank branches strongly enhances M&A performance. The positive effect on merger outcomes is more pronounced when acquirers are operated in industries with higher credit constraints, or when target regions have a low degree of marketization. Our findings provide micro evidence for the association between financial integration and real sector integration, and shed some light on how the improvement in financial system promotes M&As and enhances the allocation efficiency of capital across regions.