Electronic copy available at: https://ssrn.com/abstract=2749155

“Sorry, We're Closed"

Loan Conditions When Bank Branches Close and Firms Transfer to another Bank

DIANA BONFIM, GIL NOGUEIRA and STEVEN ONGENA

We study loan conditions when bank branches close and firms subsequently transfer to a

branch of another bank in the vicinity. Such transfer loans allow us for the first time to observe

the conditions granted when banks pool-price new applicants. Consistent with recent

theoretical work on hold up in bank-firm relationships we find that transfer loans do not

receive the discount in loan rates that prevails when firms otherwise switch banks. We hereby

critically augment recent the empirical evidence on firms changing banks and the then

observed loan rates. (89 words)

Bonfim and Nogueira are with the Banco de Portugal, and Ongena is with the University of Zurich, Swiss Finance Institute, KU Leuven and CEPR. We thank Manuel Adelino, Marcello Bofondi, Paula Cruz-García (discussant), Roberta de Filippis (discussant), Iftekhar Hasan, Olivier de Jonghe, Michael Koetter, Victoria Vanasco, conference participants at Annual Congress of the European Economic Association Meetings (Geneva), the Annual Conference of the European Association for Research in Industrial Economics (Lisbon), 6th CInSt Banking Workshop “Banking in Emerging Markets” (Moscow), 5th EBA Research Workshop (London), 2016 MBF Conference (Rome), 4th Paris Financial Management Conference, and seminar participants at KU Leuven, Maastricht University, and the University of Nottingham for helpful comments. These are our views and do not necessarily reflect those of the Banco de Portugal or the Eurosystem. We thank João Guerreiro for excellent research assistance.

Electronic copy available at: https://ssrn.com/abstract=2749155

What happens when a bank branch closes and its “orphaned firms” turn to borrowing from a

close-by branch of another bank? How are these loans priced? And what are the other loan

conditions? Despite the recent omnipresence of branch closures and their potential impact on

local communities,1 little or no empirical micro evidence exists that addresses these specific

questions.2

A recent paper by Ioannidou and Ongena (2010) in the Journal of Finance provides

empirical evidence on contract conditions just before and after a firm voluntarily switches to a

new (outside) bank that poached it. They document that loans granted by new banks carry loan

rates that are significantly lower than the rates on comparable new loans from the firms`

current (inside) banks. In their setting switchers obtain a discount of 89 basis points.

But missing from their empirical analysis is evidence on loan conditions when firms arrive en

masse at a new bank, a situation that may occur when a bank branch closes and its firms need

to transfer. In that case the new bank may pool-price the applicants at a relatively higher loan

rate,3 because the former inside bank closing the branch no longer grants them new loans (that

1 Between 2010 and 2014, according to ECB figures, Dutch banks closed 35 percent of their branches, Spanish banks 26 percent, German banks 11 percent and Italian banks almost 10 percent. Branch closure rates in France amounted to only 3 percent however (Bloomberg, “20-Somethings Show French Banks Falling Behind on Branch Cuts,” May 19, 2016). Bank branch closures are also on the agenda in the U.S. and the U.K. (e.g., Reuters, “U.S. banks want to cut branches, but customers keep coming,” August 22, 2016; The Telegraph “'Bankless' towns on the rise as 501 branches shut in a year,” January 19, 2017). 2 Extant work studies the effects of bank distress and/or mergers − and subsequent local branch reconfigurations and closures − on local development and crime (Garmaise and Moskowitz (2005)) and in general on competition, borrowers` access to credit and switching behavior (e.g., Kim and Vale (2001), Cerasi, Chizzolini and Ivaldi (2002), Sapienza (2002), Degryse, Masschelein and Mitchell (2011), Temesvary (2015)) and welfare (Slovin, Sushka and Polonchek (1993), Karceski, Ongena and Smith (2005)). On (de-)branching itself see e.g., De Juan (2003), Cerutti, Dell’Ariccia and Martínez Pería (2007), Coccorese (2012), and recently De Haas, Ongena, Qi and Straetmans (2016) and Martin-Oliver (2016). Related papers study the impact of relationship, firm, bank, and market characteristics on the probability of a firm staying with or switching from/to a bank (e.g., Ongena and Smith (2001), Farinha and Santos (2002), and Gopalan, Udell and Yerramilli (2007)). 3 In theoretical frameworks that explain the formation of bank-firm relationships, pool-pricing (which is also called mill- or uniform-pricing) occurs in the first stage. The pooling rate is below the fair rate (which reflects the known average repayment probability of all applicants) because competing banks expect to recuperate “losses” by extracting informational rents in the second stage. See, e.g., Fischer (1990), Sharpe (1990), Rajan (1992), Hauswald and Marquez (2003), von Thadden (2004), Egli, Ongena and Smith (2006), Hauswald and Marquez (2006), Black (2011) and Karapetyan and Stacescu (2014).

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would have carried differential loan rates based on its informational advantage). However, if

fixed shoe-leather switching costs à la Klemperer (1987) were causing the aforementioned

switching discount, firms transferring after a branch closure could expect to receive a similar

discount (Degryse, Kim and Ongena (2009)). In this paper we therefore analyze loan

conditions when banks deal with many new credit applicants at once, a situation that occurs

when branches of other banks in the vicinity are closed. We thereby provide the first evidence

of pool-pricing as it occurs in practice, yielding more definite identification of the fundamental

source of the estimated switching costs.

Our analysis merges records from three large and unique databases maintained by the Banco

de Portugal (BoP), i.e., the public credit registry, the database of new credit operations, and a

dynamic list of all bank branches. These three databases allow us to distinguish between

regular “switches”, i.e., a situation in which one firm starts dealing with a new bank, and

“transfers”, i.e., a situation that occurs when many firms start dealing with a new bank after

the closure of the branch of a bank that has otherwise no branches in the vicinity. We compare

the loan conditions obtained by a switching and transferring firm with the terms on loans

obtained by a large group of similar nonswitching firms.

Given the large number of loans in the database, we analyze only new loans, thereby

ensuring at once the timeliness of the information or loan terms and comparability with the

findings in Ioannidou and Ongena (2010), and we match on month of loan origination and on

bank, firm, and contract characteristics to account for macroeconomic conditions and for

differences across lenders, borrowers, and contracts. Using an exact matching procedure

allows us to get closer to the needed counterfactuals, i.e., the loan rates offered by the inside or

outside banks to the switchers and transferrers.

We first confirm the pattern of bank loan conditions documented in Ioannidou and Ongena

(2010), which given the aforementioned similarities in the empirical set-up is not only a

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necessary but also informative exercise. Our findings show that a new loan granted by an

outside bank – one that was not engaged by the firm for at least one year and consequently has

no recent information about the firm – carries a loan rate that is 89 basis points lower than the

rates on comparable new loans from the firm’s current inside banks, and 59 basis points lower

than the rates on comparable new loans that the outside bank currently extends to its existing

customers.

In contrast, when following a branch closure many firms transfer from the closing branch to a

another branch of a new bank there is no discount, i.e., the loan rate offered to these new

customers is similar to the loan rate they may have received before. But this effect is present

only for their first transfer and not for subsequent switching which again occurs at a discount.

Other loan conditions follow a similar pattern and the documented effects in general are robust

to many alterations discussed later.

Overall, our evidence is consistent with the hypothesis that after a branch closure the

informational link between the inside bank and its firms is broken. As a consequence, the

outside bank that grants the first (transfer) loan to the firm will simply pool-price and lend to

the firm at a market interest rate reflecting the pooled risks. By documenting that switching by

individual firms involves lower loan rates, but that transferring by many firms concurrently

does not, we provide for the first time in the literature salient estimates of bank loan conditions

when firms are pooled. More importantly, the pattern we observe is fundamentally not

consistent with shoe-leather switching cost, as under competitive conditions those should lead

to discounts also for the transfer loans. The pattern is therefore likely due to informational

asymmetries, as in Sharpe (1990), Rajan (1992), and von Thadden (2004), thereby confirming

a key element in theoretical models on bank-firm relationships.

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The rest of the paper proceeds as follows. Section I introduces the testable hypotheses and

underlying assumptions of banking theory on hold-up problems, and then summarizes the

extant empirical literature and shows how our unique data set allows us to improve the test

design. Section II describes the data and provides descriptive statistics. Section III tests our

hypotheses and provides robustness checks. Section IV concludes.

I. Hypotheses and Related Literature

A. Hypotheses and Assumptions

Access to private information about a borrower by an incumbent bank creates hold-up.

According to Sharpe (1990), inside banks extract rents from firms because they can holdup

companies from establishing relationships with outside banks. Inside banks have an

informational advantage over outside banks. When a firm is high quality, outside banks cannot

observe it. The inside bank offers a somewhat lower interest rate and the high quality firm has

no incentive to switch.

In the model proposed by von Thadden (2004) outside banks will optimally randomize loan

rates to attract firms that have the same observed characteristics but in the end at best break

even in terms of profits. From his model, three hypotheses are empirically verifiable:

(H1) Firms switch banks from one period to the other.

(H2) Switching loans have lower interest rates than nonswitching loans if the inside bank has

private information about the firm.

(H3) Loans will not obtain (much) lower interest rates compared to nonswitching loans if the

inside bank is deemed not to have private information about a specific firm. This will be the

case if a branch of the inside bank closes and all its firms have to transfer; outside banks will

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then pool the arriving firms.4 If on the other hand fixed shoe-leather switching costs à la

Klemperer (1987) that are known to banks and that were causing the switching discount one

observes, firms transferring after a branch closure should expect to receive a similar discount

because competing banks can then also compete loan rates down to the level of the switching

rate (as there is no fundamental difference between stand-alone switching and group

transferring in that case).

B. Empirical Findings in the Literature

Many papers explore the impact of relationship duration on loan rates and other contract

terms. Boot (2000), Ongena and Smith (2000), Berger and Udell (2002), Elyasiani and

Goldberg (2004), Degryse and Ongena (2008) and Degryse, Kim and Ongena (2009) for

example review this literature. But overall the evidence in this literature is rather mixed (see

Kysucky and Norden (2016) for a recent meta-analysis of some of these findings).

In contrast to this literature, and following Ioannidou and Ongena (2010), we study firms and

banks over a relevant period of time, identify switches and transfers, and study the loan

conditions associated with switching and transferring by comparing the loan conditions on

switching and transfer loans to the conditions on similar nonswitching loans. To identify

similar loans, we match on the month of loan origination and on bank, firm, and contract

characteristics.5

4 Recall that the pooling rate in the first period is lower than the fair rate if competing banks expect to extract informational rents in the second period. Simulations of von Thadden (2004) in Ioannidou and Ongena (2010), Internet Appendix II, show that the difference between the average loan rate on all loans granted (in the second period) and the average pooling rate (in the first period) will be one quarter of the difference between accepted and offered loan rates for switchers and one third of the difference between switchers and stayers when matching on firm quality. Put differently, in von Thadden (2004) the discount on transfer loans will be less than one third the discount on switching loans. 5 Most studies assume that the collateral and maturity decisions are taken either independently or sequentially after the loan-granting decision but before the determination of the loan rate. Ignoring the joint character of the loan decision may bias the findings (Berger, Espinosa-Vega, Frame and Miller (2005), Brick and Palia (2007),

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II. Data and Descriptive Statistics

Our analysis merges records from three large and unique databases. First, we have access to

all the data from the Portuguese public credit registry, the Central de Reponsabilidades de

Crédito (CRC), which is managed by the Banco de Portugal (BoP). The BoP requires all

banks to report total loan exposures of non-financial companies (henceforth “firms”).

Accessing this unique database one of the most comprehensive in the world (Miller (2003))

we have monthly corporate loans for all resident banks between January 1987 and July

2015. This data allows us to retrieve loan monthly exposures for every firm-bank pair,

including information on loan type and status (e.g., short or long term, in default, on or off-

balance sheet exposure).

We also employ the Portuguese database of new credit operations, the Informação Individual

de Taxas de Juro, which is also managed by the BoP. The BoP requires Portuguese banks to

report the interest rate of new loans given to firms. From June 2012 to December 2014, banks

with an annual volume of new loans to firms greater than EUR 50 million had to report the

interest rates of new loans and this obligation was extended to all resident banks in January

2015.6 For each loan, there is information about the date of origination, interest rate, maturity,

and Ortiz-Molina and Penas (2008)). By matching on collateral and loan maturity, we do not need to assume anything about the decision process. Most studies also ignore loan fees (exceptions are Hao (2003) and Berg, Saunders and Steffen (2016)) and the pricing implications of cross-selling (Liberti (2004)). By matching on bank, time, type of loan, and loan characteristics, we control for loan fees and cross-selling (assuming banks at the same point in time apply the same fees and cross-selling practices to similar loans and borrowers with similar relationship characteristics). Matching is nonparametric and does not incorporate information from outside the overlap region between the treatment and control groups. 6 As indicated later we re-run all main specifications reported later using only the period until December 2014 but results are virtually unaffected.

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maturity of interest rate, and loan amount.7 For each borrowing firm, we have information

about their industry, post code, and total bank debt.

Finally, the paper relies on the list of bank branches maintained by the BoP, i.e., the Registo

Especial de Instituições (REI). For each branch, REI provides the opening day, closing day,

and postal code. This database can be matched with loan data because banks are identified

with the same codes in every dataset. We also geographically map the postal codes of bank

branches and firms to calculate the physical distance between them.

Because the available information for banks is limited to the previous two months,

information asymmetries remain.8 For example, if a firm pays back an overdue loan, the record

resets without any trace of overdue payments on the credit history (Campion (2001)).

Apart from the information shared through the registry and the information gathered through

a relationship, banks have few other sources of information for their credit evaluations in

Portugal. Most firms are micro or small firms and do not have audited financial statements. As

a result, the capital markets are not well developed and the banking sector is the principal

source of capital for most firms. Since credit derivatives are not widely available, firms

seeking to adjust interest payments have to renegotiate or switch.

The analysis focuses on loans to private non-financial firms, in particular, on new loan

initiations by all commercial banks between 2012:06 and 2015:05.9 We exclude overdrafts and

7 Given all this information and a zero minimum loan size the combined database is consequently as comprehensive as the credit registers of Bolivia (e.g., Ioannidou and Ongena (2010), Berger, Frame and Ioannidou (2011), or Ioannidou, Ongena and Peydró (2015)), Italy (e.g., Ippolito, Peydro, Polo and Sette (2015)) or Spain (e.g., Jiménez, Salas and Saurina (2006), Jiménez, Ongena, Peydró and Saurina (2012) or Jiménez, Ongena, Peydró and Saurina (2014)). 8 Limiting “the amount of data made available for distribution to the financial institutions to the current month” is common in many countries including Portugal (see Miller (2003), Table 1A.7, Column 3). Administrative costs and regulatory objectives may explain the short information-sharing window. A two-month window seems too short to achieve optimal memory loss à la Vercammen (1995).

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current account credits to avoid distortions in the analysis of loan interest rates. All loans are

granted by one lender (i.e., are never syndicated). Analyzing only new loans allows us to

employ up-to-date and comparable firm and contract information at the precise time that firms

“switch” (or “transfer”) to a new bank.

The total exposure of Portuguese banks to private non-financial firms was approximately 60

percent of GDP in June 2012 – the beginning of the sample period. The 6 largest banks held

85 percent of the market. At the regional level, the Herfindahl-Hirschman Index (HHI) varies

between 1,432 and 1,568. For new loans, the HHI varies between 1,633 and 2,785 in 2015. In

the same manner, more remote regions have high concentration indices, with the HHI in the

province of Bragança varying between 3,458 and 6,737 in the same period for example.

There are 1,363,121 new loans to 94,281 firms in the sample. 90 percent of these firms are

limited companies (Sociedades por Quotas) and 9 percent are corporations (Sociedades

Anónimas). Corporations are much larger than limited companies, which coincides with the

findings of Petersen and Rajan (1994) for example for US firms. In June 2012 the average

(median) corporation has €6,041,384 (€1,639,503) in debt outstanding, while the average

(median) limited company has only €435,456 (€122,714) in debt outstanding. In the sample

period 32 percent of all firms are in the retail industry, 17 percent in manufacturing and 11

percent in construction.

86 percent of all new loans are given to firms that have more than one relationship. However,

from all firms with some bank credit exposure in the beginning of the sample, only 36 percent

9 To keep the set of financial institutions homogeneous in terms of financial structure and regulation, we focus on loans from commercial banks and exclude loans from other formal nonbank institutions (such as private financial funds, credit unions, mutual societies, etc.). Most commercial banks are privately owned. Banks are also prohibited from owning nonfinancial firms (Barth, Caprio and Levine (2006)). The sample period is characterized by an economic recession. The average growth rate of real GDP is -0.8 percent, somewhat lower than the average -0.03 percent growth rate of the previous five years.

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have multiple relationships, suggesting that firms with multiple relationships get new loans

much more often. The incidence of collateral is 38 percent, between the 24 percent reported by

Ioannidou and Ongena (2010) and the 53 percent reported by Berger and Udell (1995).10

There were 839 branch closures during the sample period. 82 percent of all branch closures

are associated with 6 banks, which had 70 percent of all firm-bank relationships (in June

2012). In geographic terms, closures are concentrated in Lisbon and Porto. These two regions

represent 25 and 18 percent of all bank relationships (in June 2012), and 27 and 19 percent of

all closures, respectively.11

The significant net decrease in the number of branches occurred against a backdrop of

pressures for cost-cutting measures. However, these pressures were not homogenously felt

across all banks. Some of the largest banks in Portugal were recapitalized with funds from the

bailout package agreed with the IMF, the ECB and the European Commission in 2011. In

exchange for these funds, banks had to submit restructuring plans with the aim of improving

profitability and solvency. Given there was a widely-shared concern about over-branching in

Portugal, this included the substantial reductions in both the number of branches and staff

members as a prime cost-cutting measure.12 As a consequence these expedited branch closures

were likely to be somewhat indiscriminate, i.e., not always based on local branch quality of

firms and their profitability, providing for an unencumbered set of quasi-natural experiments.

10 Hence the incidence of collateral is fairly low and even (fully) collateralized loans may still carry a positive loss in the event of default – a prerequisite for von Thadden (2004) to be applicable. 11 As indicated later, removing these two regions from our sample will not affect our main findings. 12 For further details, please see for example the Press Release on July 24, 2013, by the European Commission on “State aid: Commission finalises discussions on restructuring plans for Portuguese banks CGD, Banco BPI, BCP.”

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III. Results

We test the hypothesis that transfers do not enjoy the interest rate discount that ordinary

switches do. First, we document that switches and transfers occur. Second, we analyze interest

rates for switches and transfers. We also investigate whether loan rates after switching and

transferring present distinct patterns. Finally, we run some robustness tests and compare other

loans conditions, namely the rate of collateralization, maturities and loan amounts.

A. Switches and Transfers

A.1. Definitions

For comparability, we use the definition of switching loans from Ioannidou and Ongena

(2010). There are two conditions for a new loan to be classified as a switching loan. First, this

new loan should be obtained from a bank with which the firm did not have a relationship

during the previous twelve months. This bank is called the outside bank. Second, the firm

must have had at least one relationship in the previous 12 months with at least one other bank.

This bank is the inside bank. All new loans that do not observe these two conditions are

nonswitching loans. In effect, and as in Ioannidou and Ongena (2010), we conservatively

assume that key inside information can get stale as quickly as within one year.

Transfer loans are a subgroup of the switching loans. A switching loan is a transfer loan if the

nearest branch of any of the inside banks of the firm was closed in any of the considered

periods prior to the concession of the new loan by the outside bank (we consider 1 to 6 months

after closure, 7 to 12 months after, and more than 12 months after as periods). Two additional

conditions have to be observed in transfer loans. First, the physical distance between the firm

and the closing branch must be smaller than 5 kilometers (as the crow flies). Second, after the

closure the closest branch from this inside bank must be more than 5 kilometers away from the

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firm.13 These conditions ensure that there is a strong locational driver for the firms to approach

a branch of another bank en masse. Figure 1 illustrates the definitions of nonswitching,

switching and transfer loans, while Figure 2 sketches the geographical set-up.

[Figures 1 and 2 around here]

The 12 month window was chosen to match the definition of Ioannidou and Ongena (2010).14

In the same manner, we assume that lending relationships comprise all sorts of used and

unused credit, including credit contracts in which the firm shares the responsibility of

repayment with other institutions. Our definition of switching does also not differentiate

between those firms that “move” between banks and those firms that “add” a bank

relationship.15

Moreover, we do not retain firms that cease their relationship with the inside bank (i.e., firms

that do not have any business dealings with this bank for more than 12 months), because this

13 As in other countries (e.g., Petersen and Rajan (2002), Degryse and Ongena (2005), Agarwal and Hauswald (2010)) most firms in Portugal engage banks in the vicinity. 78 percent of the firms employ at least one bank that has branches in the same postal zone as the firm while 63 percent firms engage only banks that have a branch there. For radii of 10 kilometers estimates are qualitatively similar but based on seemingly more noisy information. 14 Empirical findings suggest that a substantial portion of the bank’s inside information is collected during the first year (Cole (1998)). Ioannidou and Ongena (2010) show that their main results are robust to using 24- and 36-month cut-offs. As our estimates for the switching spread are most similar to theirs, we consider the 12-month as appropriate. 15 We concur with Ioannidou and Ongena (2010) that differentiating between “adders” and “movers” based on whether they have or do not have other outstanding loans at the time of the switch does not necessarily provide a meaningful distinction. Adders could be classified as movers if, at the time of the switch, their inside loans expired and were not renewed until after they got a loan from an outside bank. Similarly, movers could be classified as adders if their inside loans happened to expire a few months after the switch. It is therefore hard to develop a meaningful classification without relying on future (but possibly endogenous) information. That is, firms may decide to reverse their initial decisions, depending on future offers they receive from both the inside and outside banks. We also believe that investigating the conditions under which a firm obtains a loan from another bank (and not from an existing lender that remains operational or closes its branch) is the most pertinent question – and it is the one addressed in von Thadden (2004). It is correct that moving versus adding a relationship may be a meaningful distinction for de novo firms (Farinha and Santos (2002)) or for firms that switch following bank mergers (Degryse, Masschelein and Mitchell (2011)). As we analyze only firms that had an inside bank, de novo firms are unlikely to play an important role in our sample. While bank mergers do not affect results in the sample period, our analysis is indeed focused on differentiating between switching and transferring (following local branch closures).

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question is not relevant in the context of the model presented by von Thadden (2004) that we

are testing empirically.

A.2. Statistics

A.2.1. Firms and switching loans

There are 24,292 switches in the sample representing 1.8 percent of all new loans in the

period. From the 94,281 firms that obtained at least one new loan, 16,568 switched at least

once, representing 17.6 percent of our sample, or 5.9 percent per year. Results are similar to

the previous literature about bank switching, which is summarized by Degryse, Kim and

Ongena (2009). Farinha and Santos (2002) for example also find that 64 percent of 1,577

Portuguese de novo firms in their sample switch between 1980 and 1996, i.e., approximately

3.7 percent of their sample switches in a year. Nevertheless, this calculation underestimates

the annual percentage of switches in their sample because not all relationships last from 1980

to 1996.

87 percent of all switching firms in the sample are limited companies while 12 percent are

corporations. Average (median) bank debt for switching firms is €532,032 (€68,424), less than

€579,224 (€35,661) observed for nonswitching loans. The difference is not statistically

significant at the 10 percent level. However, larger firms obtain new loans more often. These

findings contrast with the results from Ioannidou and Ongena (2010), who find that the bank

debt of switching firms is the triple of nonswitching firms. Moreover, we also find that 62

percent of all switching loans are associated with firms with multiple relationships, less than

the 87 percent reported for nonswitching loans. 35 percent of all switches occurred in the retail

sector, followed by 25 percent in manufacturing and 8 percent in construction. 79 percent of

all switching firms only switched once, 13 percent switched twice, and 8 percent more than

twice.

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Table I provides descriptive statistics for all (individual) switching and nonswitching loans

(the statistics provided in the previous sections were by firm). Loan rates are on average 146

basis points lower for switching loans, not accounting for differences in other loan and firm

characteristics. The default rate on the pool of switching firms is 0.7 percent, well below the

3.4 percent verified for nonswitching firms. This is consistent with the fact that banks can

observe in the credit register whether the firm has overdue loans. It might also be a signal of

the existence of evergreening practices, empirically documented by Peek and Rosengren

(2005), as inside banks are clearly more likely to grant a loan to a firm in distress than outside

banks.

[Table I around here]

80 percent of all switching loans are associated with limited companies and 16 percent with

corporations, while 68 percent of all nonswitching loans are associated with limited companies

and 31 percent with corporations. In the same manner, on average the total amount of bank

debt associated with switching loans is €848,602, less than one third of the €3,563,670 for

nonswitching loans. Such results are driven by the fact that large firms tend to get more than

one (nonswitching) loan from the same bank. 66 percent of all switching loans are

collateralized, while 38 percent of other loans are collateralized. However, the maturity of

switching loans is on average longer than of non-switching loans (9 months vs. 7 months,

respectively), so there is only mixed evidence that banks are using other loan characteristics to

deal with the information asymmetries of new borrowers. Switching loans are also more likely

to have a fixed interest rate and firms less likely to hold multiple relationships. The outside

bank most often does not immediately become the primary lender of the switching firm, while

many nonswitching loans are (almost by definition) regularly provided by the primary lender.

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Additionally, the relationship with the outside bank usually starts with only one credit product,

while nonswitching loans are normally associated with multi-product relationships.

A.2.2. Loan transfers

Table II provides descriptive statistics for transfers and nonswitching loans. There are 1,129

loan transfers, representing 0.08 percent of all nonswitching loans and 5 percent of all

switching loans. The average interest rate for loan transfers is 5.36 percent, 219 basis points

less than for nonswitching loans and 73 basis points less than for switching loans.16 Other loan

characteristics seem to be similar to the ones verified for switching loans (see also Table I),

namely the percentage of defaulted loans, collateralization, maturity, loan amount, share of

floating rate loans and of multiple relationships, the likelihood that the outside bank is the

primary lender and the likelihood of multiple products in the bank relationship. 74 percent of

all loan transfers were given to limited companies and 24 percent to corporations, in

comparison to 80 percent and 16 percent for switching loans. In contrast, the average amount

of bank debt is €1,051,500, more than the average for switching loans (€848,602).

[Table II around here]

Transfers are distributed among different sectors and geographies. Therefore, a straight

comparison of simple averages is inadequate to arrive to conclusions. Manufacturing

represents 39 percent of all transfers, followed by retail (34 percent) and the transport

industries (6 percent). 19 percent of all transfers and 21 percent of all switches happen in

Porto. However, while for switches Porto is followed by Lisbon (18 percent), for transfers

16 Also notice that the standard deviation is almost half the standard deviation of nonswitching loans and it is also smaller than the standard deviation of other switching loans at the 1, 5, and 10 percent significance levels. This smaller standard deviation is consistent with pool-pricing. Given the variation across region and time in banking market conditions, and given firm characteristics that are observable to all banks, even pool-pricing will in practice not entail a similar loan rate for all firms.

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Lisbon only appears in the fourth place (11 percent). This happens due to the high branch

density in Lisbon, being common to find several branches of the same bank within a 5 km

radius.

A.2.3. Residual maturity

Figure 3 shows the distribution of firms that switch banks according to the residual maturity

of their loans with the inside bank at the time of switching. When firms have more than one

loan with the inside bank, we use as reference the shortest residual maturity.

[Figure 3 around here]

Arguably, firms should more actively consider switching or transferring to a new bank when

they have loans to refinance. We observe that for switches approximately 52 percent of firms

have loans with residual maturity below 90 days, while for loan transfers 67 percent of firms

have loans with residual maturity below 90 days. In both cases, there is a high concentration of

firms that switch or transfer from one bank to the other when they have loans to refinance in

the short run. This concentration is significantly higher for firms that are confronted with a

branch closure. These firms are thus under pressure to find a new lender to refinance their

maturing loans, possibly forcing them to accept the pool price that firms normally contract

when they get a new loan.

B. Loan Rates

B.1. Matching

The ideal setting to compare switching and transfer loans (to nonswitching loans) would be

to know the interest rate offered to the firm for a nonswitching loan. However, we do not have

this information for many loans, so we use a matching model to derive it (we return to using

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nonswitching loans granted to the same firm in robustness).17 As in Ioannidou and Ongena

(2010) we first examine whether the loan rate that the switcher receives from the outside bank

is lower than the rate its inside bank offered. Since the inside bank’s unsuccessful offer is

unobservable, we approximate it using similar loans that the inside bank granted in the same

month to other comparable firms (Figure 4). Recognizing the possible impact of bank

characteristics on the inside and outside offers, in a similar matching exercise we also compare

the rates on the switching loans to the rates of similar loans that the switcher’s outside bank

granted in the same month to other comparable existing customers (Figure 5).

[Figures 4 and 5 around here]

Table III contains the list of variables we use to establish the matching model. We match

loans on the quarter they were given, on firm characteristics (credit rating, region, and

industry) and on loan characteristics (existence of collateral, maturity, loan amount, and

floating loan rate). We also match either with other loans from the firm’s inside banks or with

loans from the firm’s outside bank. For inside banks, we also match on the affiliation with an

international banking group.

[Table III around here]

The impact of unobserved loan characteristics will be reflected in interest rate heterogeneity

within the same matching group. Unobserved borrower heterogeneity works against finding

evidence consistent with a lower interest rate granted to switchers. In von Thadden (2004),

unobservable bad borrowers are more likely to switch. Hence, if our matching variables do not

adequately capture borrower quality, then bad switchers are more likely to be paired with good

(instead of bad) nonswitchers, resulting in smaller estimated cuts (see simulations of the von

17 But also in this application we can view the performed matching as “a tool for making the regression more effective” (Angrist and Pischke (2008)), by balancing the two groups so that we are obtaining an average treatment effect.

17

Thadden model in Ioannidou and Ongena (2010)). Notice that matching on both the quarter of

loan origination and loan maturity also allows us to control for unobservable economic

conditions that could affect the loan rates.

We match all switching loans with non-switching loans that have the same characteristics and

calculate the spread between the interest rates of these loans. We regress the spread on a

constant and weight each observation to the inverse of the number of matches for switching

loan or transfer i. For instance, if transfer i has 6 matches, each match will have a weight of

in the regression.

B.2. Interest rate differential for switching and transfer loans

B.2.1. Switching loan rates

Table IV contains the list of matching variables used to compare the interest rate on the

switching and (matched) nonswitching loans, the number of switching and nonswitching

loans, the total number of observations used in each specification, and the average interest rate

differential between switching and nonswitching loans. Standard errors are reported in

parentheses and are clustered at firm level.

[Table IV around here]

In Column I, we compare the interest rate of switching loans with the interest rate of non-

switching loans made by firms’ inside banks, conditional on the specified matching variables.

In this regression we can employ 6,265 switching loans, which are paired with 31,560

nonswitching loans. The total number of matched pairs is 50,915, which means that on

average each nonswitching loan is paired with 1.6 switching loans. Non-switching loans have

interest rates that are on average lower by 122 basis points, which is estimated to be significant

at the one percent level. This estimated discount is most similar, though in absolute magnitude

18

somewhat larger, than the one reported in the literature. For instance, Ioannidou and Ongena

(2010) − using the same matching methodology as we do − estimate the discount to equal 89

basis points in Bolivia, while Barone, Felici and Pagnini (2011) report a switching discount of

44 basis points in Italian local banking markets.

The somewhat higher discount is likely related to heterogeneity in interest rate costs faced by

Portuguese banks between 2012 and 2015. In this period financing rates varied among

Portuguese banks because of the rising sovereign debt interest rates. Crosignani, Faria-e-

Castro and Fonseca (2015) for example find that the lending patterns of foreign, large and

small local banks were heterogeneous in the period between 2005 and 2014. In Column II of

Table IV we therefore also match on the bank affiliation to an international banking group

(i.e., we match local to local and foreign to foreign banks). Adding this variable brings the

interest rate differential to 89 basis points (which is exactly the same as in Ioannidou and

Ongena (2010)).

In Column III, we report the interest rate differential when comparing with interest rates on

loans granted by outside banks (recall Figure 5). Now the comparison is within the same bank

during the same quarter. Therefore the loan rate differences between switching and

nonswitching loans cannot be attributed simply to differences in the marginal cost of funding

between inside and outside banks (or more generally to any other form of unobserved

heterogeneity with respect to the two banks). This is an important advantage over the matching

exercise in Column II (or an alternative exercise whereby even more bank characteristics are

added to the set of matching variables). So for the rest of the paper we focus the analysis on

comparing switching loan interest rates with rates from nonswitching loans of the outside bank

to avoid the impact of heterogeneous interest rate policies among different types of banks.

19

Column III is therefore our benchmark model. The interest rate discount now equals 58 basis

points, and it is significant at the 1 percent significance level. This value is surely within the

range of the ones reported previously in the literature. The discount represents 7.8 percent of

the interest rate for nonswitching loans, which compares with 6.4 percent in Ioannidou and

Ongena (2010) and 7 percent in Barone, Felici and Pagnini (2011). And as noted in these

papers such a discount for switching loans is in general consistent with theoretical predictions

emanating from the framework in von Thadden (2004). The outside bank will only be able to

poach firms to which it offers interest rates below what is currently offered to the firm.

In Column IV of Table IV in an important robustness exercise we can match on one extra

variable, i.e., firm identity. This allows us to compare switching and non-switching loans

granted to the same firm in a given quarter. In contrast to Ioannidou and Ongena (2010) we are

able to match on firm identity because our starting sample of switching loans is almost 23

times as large in size as theirs (i.e., 24,292 versus 1,062 switching loans). Matching on firm

identity does not alter our main findings, i.e., the interest rate discount now equals 92 basis

points.

B.2.2. Interest rates for transfer loans

Having benchmarked our switching estimates with those in the extant literature, we now turn

to our main investigation. Table V compares the interest rate of switching loans and

nonswitching loans before and after the closest branch of the inside bank that was servicing

the firm was closed. Transfer loans are all switching loans that occur after the branch is closed.

Transfer loans are matched using all the variables of Column III in Table IV, i.e., they are

matched with non-switching loans from the outside bank.

[Table V around here]

20

Before branch closure, we observe 230 switching loans, which are paired with 878

nonswitching loans. The total number of matched pairs is 1,050. Switching firms enjoy an

average discount of 63 basis points, which is very close to the 59 basis points reported for the

whole sample. The discount is again significant at 1 percent level. This implies that prior to

closure those areas affected by branch closures and those that are not observe similar

switching discounts.

Column II in Table V contains transfer loans 1 to 6 months after the closest branch of the

inside bank is closed. There are 68 transfer loans in this period, which are matched with 295

nonswitching loans, forming 305 matched pairs. The coefficient is positive but not significant

at the 10 percent level. In fact, in the first six months after the branch is closed firms no longer

enjoy switching discounts, which is consistent with the prediction for the first period in the

von Thadden (2004) model. This evidence is coherent with the hypothesis that after the branch

closure the informational link between the inside bank and its firms is broken. As a

consequence, the outside bank that grants the first (transfer) loan to the firm will simply pool-

price and lend to the firm at a market interest rate reflecting pooled risks.

In the period from 7 to 12 months after the branch closure, there are 78 loan transfers, which

are matched with 338 loans, forming 535 matched pairs. The coefficient is negative and close

to the initial level (-57 basis points), implying that as time passes the effect of the branch

closure disappears. From the 13th month onwards the effect of the branch closure disappears

completely. In this period there are 236 loan transfers, 986 non-switching loans, and 1,371

matched pairs. The switching discount is 94 basis points, statistically significant at the 1

percent level. The reason for this reappearance of the discount in later time periods is that

firms start re-engaging banks and hence we are no longer dealing with first transfer loans.

21

B.2.3. First versus later transfers

Indeed, according to the model of von Thadden (2004), only the first transfer loan after the

branch closure should not have the interest rate discount observed in switching loans. After the

first transfer loan transfer, the firm establishes a relationship with a new bank. As a

consequence, in future transfer loans the outside bank of the first transfer in effect becomes an

new inside bank, therefore able to hold up the firm. Hence, the outside bank in subsequent

transfer loans has to offer the switching rate that we observed before, otherwise the firm will

continue to borrow from the inside bank.

To test this conjecture, we separate first transfers from later transfers. Transfers are classified

as “first transfers” if the firm is switching for the first time after the branch of its inside bank

has closed and as “later transfers” otherwise. Table VI shows interest rate differentials for first

transfer loans only. The structure is similar to the one used in Table V. Switching loans are

matched with nonswitching loans from the outside bank. Matching variables are the ones used

in Column III of Table IV. Before the branch closure, we use the same switching loans of

Table V, yielding the same switching discount of 63 basis points.

We only keep first transfers that occur 1 to 6 months after the closure. There are 62 transfer

loans, which are matched with 283 non-switching loans, forming 289 matched pairs. The

coefficient is positive and results are not significant at the 10 percent significance level,

meaning that there is no evidence of a switching discount up to 6 months after the closure of

the branch.

[Table VI around here]

Considering only first transfers, 7 to 12 months after the closure, we have 39 switching loans,

185 non-switching loans and 235 matched pairs. The coefficient is now positive, very close to

0, and non-significant at the 10 percent significance level. In Table V the coefficient was

22

negative and significant, which implies that later transfers were driving this result. As a

consequence, the evidence is consistent with the fact that the effect of the branch closure goes

beyond 6 months.

More than 12 months after the closure there are 155 first transfers, 659 non-switching loans,

and 783 matched pairs. The coefficient is -97 basis points, close to the -94 basis points

reported in Table V. Results are significant at the 1 percent level. These results imply that in

the long-term the effect of the branch closure fades even for first transfer loans. The evidence

is consistent with the gradual fading of pool-pricing of the group of firms transferring in

immediate need of financing, to a reestablishment of a discount granted to individual

“switching” firms to be recovered later through informational holdup.

Table VII contains interest rate differentials for later loan transfers. This table again follows

the same structure as in Table V. Before the branch closure we consider all switching loans

and have an interest rate differential of -63 basis points (the same as reported in Tables IV and

V).

1 to 6 months after the branch closure, there are only 6 switching loans classified as later

transfers. These loans match up with 16 non-switching loans forming 16 matched pairs. On

average, the interest differential is -82 basis points, but not statistically significant, suggesting

that these loans do not enjoy any switching discount.

[Table VII around here]

There are 39 other transfers between 7 and 12 months after the branch closure. These loans

match up with 189 non-switching loans forming 300 matched pairs. The interest rate

differential is -115 basis points and significant at the 5 percent level. Beyond 12 months after

the branch closure, we observe 81 other transfers, 336 non-switching loans and 588 matched

23

pairs. The switching discount is 89 basis points, significant at the 1 percent level. The value is

close to the discount of 97 basis points observed for first transfers in Table V.

These results contrast with the findings from Table VI. While for first transfers there is no

switching discount in the first year after branch closure, for later transfers we observe a

sizeable discount. This result is consistent with the hypothesis that the outside bank receiving

the transferring firm informationally captures it such that later transfers involving new outside

banks will again result in the switching discount we have seen so far.

B.2.4. Robustness

In Tables VIII and IX we return to the limited set of first and later transfer loans for which

we also observe concurrent nonswitching loans being granted to the same firm, i.e., the

matching scheme in Column IV in Table IV. While also matching on firm identity provides a

high degree of confidence in having controlled for all relevant heterogeneity, few observations

remain. For example we observe only 14 first transfer loans in the period 1 to 6 months after

the branch closure that can be matched with 28 nonswitching. But despite this substantial drop

in the number of observations results remain qualitatively most similar.

[Tables VIII and IX around here]

In Table X, we compare directly the difference between interest rate discounts of switching

loans and of loan transfers. We match up switching loans with non-switching loans that share

the characteristics of column III of Table IV and calculate the interest rate difference between

each switching loan and their matching non-switching loans. We regress interest rate

differentials on a constant and on a categorical variable that classifies loan transfers according

to the number of months since the closure of the branch of the inside bank. Switching loans

that are not loan transfers have an average discount of 63 basis points, significantly different

from 0 at the most common significance levels. In comparison to other switching loans, loan

24

transfers up to 6 months after the branch closure have average interest rates greater than the

switching interest rate by 78 basis points. This result is statistically significant at the 1 percent

level, which confirms that loan transfers immediately after branch closures have interest rates

that are significantly higher than the rates of normal switching loans. For later transfers, we do

not observe this effect, as coefficients are not significant at the 10 percent significance level.

[Table X around here]

In Appendices 1, 2 and 3 we analyze sub-samples of our dataset and revisit two earlier

mentioned issues, pertaining to the sample period and geographical area covered by our study.

In Appendix 1 we replicate Tables IV to VII (for easy comparability we maintain the same

table numbering) excluding the period starting in December 2014 after which all banks had to

report loan rates. In Appendix 2 we exclude Lisbon and Porto, large cities where many

closures occurred yet distances may play a different role than elsewhere due to branch density.

In both cases our findings are most similar.

Portugal is one of the EU countries with the highest bank branch density.18 The closure of a

few branches is unlikely to affect local bank competition and thus our results should be driven

by asymmetric information rather than by changes in competition. To fully exclude this latter

possibility, in Appendix 3 we analyze areas where the hypothetical closure of a branch should

have a negligible impact on competition.19 For that purpose, we calculate the impact of each

branch closure in our data set on the local HHI (for a radius of 5 km around the closure and an

HHI calculated based on branch presence). We re-do Tables IV to VII for firms served by

18 According to the International Monetary Fund Financial Access Survey Portugal had 54 commercial bank branches per 100,000 adults in 2014, while France, Germany and Italy had 38, 15, and 60, respectively. 19 While the pool-pricing of transfer loans should in principle be unaffected by the organizational characteristics of the closing branch, the pricing of switching loans can be affected by the organization of the inside bank. Loan officers at decentralized banks for example may be more incentivized to collect and use soft information (Stein (2002)) that may be more private in nature than the hard information employed to price loans in centralized banks. The discount received when switching from a decentralized bank will then be steeper. See also Degryse, Laeven and Ongena (2009).

25

branches that witness a minor change in HHI which is below 25 (which is a few points below

the median change on a scale of 0 to 10,000; see Figure 6). These are the areas in which

closing a branch should have the smallest impact on competition. We obtain the same

conclusions as before. There is an interest rate discount for loan switches, which varies

between 59 and 122 basis points, and this discount does not exist for transfers and first

transfers 1 to 6 months after the branch closure. These results imply that changes in the

intensity of competition are not related to changes in interest rate discounts, as results hold in

areas where many branches remain and changes in competition as captured by the changes

HHI are very small.

To further rule out the hypothesis that our results are driven by changes in competition and

also to be sure that the absence of discounts after loan transfers is not due to the fact that

branch closures could have been anticipated, in Appendix 4 we show our results for a

subsample of branches that were more unlikely to close. To do that, we first estimate a simple

model to compute the likelihood of individual branch closure. In Table I of Appendix 4 we

show that branches that closed are, on average, slightly larger than others (based on their total

corporate loan portfolio). There are no significant differences in terms of branch density. The

most striking difference between branches that do and do not close is that the latter record a

significantly larger fraction of loans in default. Banks seem to be more eager to close branches

where loans are underperforming, possibly due to local shocks or poor local management.

Exploring these differences, in Table II of Appendix 4 we report the results of this regression

model that estimates the probability of individual branch closures. When controlling for

county, bank and time fixed effects, we find that smaller branches are more likely to close.

Further, a higher local branch density is also associated with a higher probability of branch

closure. Our next step is to estimate our main empirical specification on transfers for a

subsample of branches that were unlikely to close (Table V in Appendix 4). To do that, we use

26

the estimated likelihood of individual branch closure. If we split the sample in three quantiles

according to this likelihood and use only the group of branches that were least likely to close,

we confirm that our results remain unchanged.

In Appendix 5 we run one additional test to rule out competition as a source of interest rate

discounts after switching. If discounts still exist in high competition areas for small banks that

have arguably no market power, then it is unlikely that discounts are being generated by an

increase in competition after branch closure. Our results are broadly consistent with what we

had before, thus providing further evidence that changes in competition do not play a role in

our story.

Our main results hinge on ensuring that firms matched in treatment and control groups are as

similar as possible. This of course depends on the choice of matching variables. To be sure

that our results are as robust as possible to different matching strategies, in Appendices 6 to 9

we re-run Tables IV to VII with different matching variables. In Appendix 6 we match

switching loans on county instead of province and obtain similar interest rate discounts for

switching loans. We also do not find statistically significant interest rate discounts for loan

transfers 1 to 6 months after the branch closure. In Appendix 7 we match on branch density

(number of branches in the county per 1,000 adults) and find similar results for switching

discounts and loan transfer discounts 1 to 6 months after the branch closure. Results from

Appendices 6 and 7 removes any remaining concerns that our baseline results are driven by

differences between the regions of the switching loans and the regions of the matching loans.

Firms with single bank relationships may face more difficulties in finding a new bank and

may therefore face different pricing conditions. To address this concern, in Appendix 8 we use

a dummy that tags firms with multiple bank relationships in the month before the new loan as

an extra matching variable. We once more observe similar results. Hence, interest rate

27

discounts for switches and the impact of branch closures on switching discounts seems not to

be driven by matching single relationship and multiple relationship loans.

In Appendix 9 we create a categorical variable that classifies firms as being micro-sized,

small, medium-sized or large. We create this classification using the guidelines defined in the

EU recommendation 2003/361. We use this variable as an additional matching variable,

replicate Tables IV to VII, and arrive at qualitatively similar conclusions.

In our baseline results, one of the matching variables used is firms’ credit rating. This allows

us to be sure that potential pricing differences are not attributable in differences in perceived

risk. Nevertheless, it is interesting to dig deeper into this issue and examine if switching and

transfer outcomes are similar for good and bad quality firms. This is even more relevant if we

recall that one of our aims is to test the model in von Thadden (2004), which predicts that

good and bad borrowers may display different switching patterns. In Appendices 10 and 11 we

do a sample split of firms according to their credit rating. In Appendix 10 we use firms that

have a probability of default below the median and in Appendix 11 we use firms with a

probability of default above the median. We replicate Tables IV to VII in both appendices and

find the same results for the two groups. Apparently it is not differences in credit ratings that

drive our main results.

In Appendix 12 we only consider transfers if they are caused by closure of the branch of the

firm’s main lender. It is possible that the impact of branch closure is larger when this is the

main bank of the firm. Still, the results are similar to the ones obtained in Tables V to VII. The

interest rate spread between the switching loan and similar loans is close to 0 and not

statistically significant for transfers (Appendix 12 Table V) and first transfers (Appendix 12

Table VI) 1 to 6 months after the branch closure. There are no interest rate discounts when the

main lender closes its branch. Assuming that the main lender is the most important one for the

28

firm, these results corroborate the conclusion that the change in soft information explains the

existence of interest rate discounts for switching firms.

In Appendix 13 we include the month of the branch closure and the month before the branch

closure in the post-transfer period, i.e., we assume that in the month before the branch closure

firms already act as if the branch of the incumbent bank has been closed. With this

assumption, we obtain similar results for transfers (Appendix 13 Table V) and for first

transfers (Appendix 13 Table VI).

Finally, in further unreported regressions we re-run all exercises only for closures of

branches by banks that were recapitalized with bailout funds (as these closures could even be

more externally imposed and therefore even less encumbered than other closures). Results are

most similar.20

C. Other Loan Conditions

C.1.1. Switching loans

Table XI compares loan conditions of switching loans with loan conditions of comparable

non-switching loans using the same matching technology used in Table III. Recall that with

this matching exercise, we aim to simulate the offered loan conditions as if the firm had not

switched to the new outside bank and compare them with the switching conditions offered by

this bank.

[Table XI around here]

In Column I we report again the baseline results for the loan rate, already reported in Column

III of Table IV. The interest rate differential is -59 basis points.

20 In one specific date, one bank reports a large number of loans to the same firm. We believe that this might have been a reporting error and repeat the analysis without these loans. The results are qualitatively the same. We opted to maintain these loans in the dataset to maintain its integrity.

29

In Column II we repeat the matching exercise for the likelihood that switching loans are

collateralized. We also use the loan interest rate as a matching variable in this exercise to

control for cases in which different collateral policies are related to the loan interest rate.

There are 5,997 switching loans and 19,197 non-switching loans, forming 26,532 matched

pairs. There is no statistically significant difference in collateralization between switching and

non-switching loans at the 10 percent level. In contrast, Ioannidou and Ongena (2010) find

that switching loans are more likely to be collateralized than comparable nonswitching loans.

The literature points out that banks are more likely to require collateral to reduce the impact of

asymmetries of information (see Berger and Udell (1995)). However, under the von Thadden

(2004) framework banks have incentives to offer better loan conditions to make firms switch.

In Column III we run the matching model and compare differentials in maturity for loans

with the same characteristics. Matching retrieves 8,361 switching loans, 33,275 nonswitching

loans and 51,443 matched pairs. The maturity of switching loans is on average 0.63 months

longer, and the difference is significant at the 1 percent level. The results are consistent with

the hypothesis of von Thadden (2004) that banks have the incentive to offer better loan

conditions to switching firms. The results are also consistent with the findings of Ioannidou

and Ongena (2010), who arrive to a larger positive differential of 6.43 months.

In Column IV, we resort to the matching model to calculate loan amount differentials

between switching loans and matched nonswitching loans. We get 10,321 switching loans,

68,297 nonswitching loans and 122,053 matched pairs. While on average the loan amount for

switching loans is greater by €1,262, the difference is not statistically significant at the 10

percent level.

30

C.1.2. Transfer loans

In Table XII, we repeat the matching model of Table XI for transfer loans. Panel A contains

all transfer loans, while Panel B contains first transfers, and Panel C later transfers. In Panel A

none of the loan conditions are statistically different at the 5 percent level. Transfers are less

likely to be collateralized by 8 percentage points, but this result is only statistically significant

at the 10 percent level. This evidence corroborates previous findings. With the break of the

informational link between the inside bank and the firm, the outside bank is able to lend

without having to offer more beneficial loan conditions. Results are more evident at Panel B

because we are only including first transfers. None of the loan conditions are statistically

different at the 10 percent level, indicating that loan transfers and non-switching loans share

on average the same loan conditions.

[Table XII around here]

In Panel C, the interest rate of later transfers is lower on average by 111 basis points in

comparison with non-switching loans. For loan amounts, there are 64 switching loans, 560

non-switching loans, and 1,285 matched pairs. Loan amounts of later loan transfers are on

average lower by €22,945. According to Degryse, Kim and Ongena (2009), relationship

borrowers tend to have better access to finance and therefore obtain larger loans than other

borrowers that are initiating their relationship with another bank.21 However, we only find this

effect for later transfers and not for regular switching loans.

21 In von Thadden (2004) all granted loans are of unit size, making these findings that are indeed seemingly inconsistent with his model not entirely straightforward to interpret.

31

IV. Conclusion

Using comprehensive data from Portuguese branch closures and new loans issued between

2012 and 2015 we study how inside information affects loan conditions. Consistent with

previous findings in the literature we find that switching loans receive interest rates that are on

average 58 basis points lower than nonswitching loans. However, the interest rate on loans

firms at once obtain after the closure of the branch of their inside bank, i.e., when transferring

to a branch of another bank in the vicinity, are not different from the interest rates on

nonswitching loans. Later transfers (that are not the first after the branch closure) again enjoy

statistically significant interest rate discounts.

The contribution of our paper is therefore the following. We provide the first evidence of

pool-pricing of loans to groups of transferring firms in a clean quasi-experimental setting in

which branches are hurriedly closed as part of bank restructuring programs. We thereby

exclude the possibility that the findings on loan rate discounting in the literature so far are due

to fixed shoe leather switching cost à la Klemperer (1987) − which would always show up as

a discount − but are instead due to the presence of inside information and holdup in bank

credit provision. Our investigation thus corroborates key elements in modern banking theory

(as in Sharpe (1990), Rajan (1992), and von Thadden (2004), for example). The paper

confirms that when bank branches close potentially valuable information on borrowers is lost.

32

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Loan i to Firm A

Loan ii to Firm A

Loan iii to Firm A

Loan iv to Firm A

Loan v to Firm A

Closest Branch of Bank 1 Closes

Figure 1. Switching loans, transfers, inside banks and outside banks. The figure above represents the relationships between firm A and five different banks. Before t=0 firmA has a loan outstanding with Banks 1 and 2, the inside banks. At t=0 Firm A establishes a relationship with Bank 3. Bank 3 is an outside bank because the firm did not have a relationshipwith Bank 3 in the previous 12 months. Loans i and ii are nonswitching loans because these loans are granted by the inside banks. Loan iii is a switching loan because it is a new loangranted by an outside bank. Loan iv given by Bank 4 is a transfer loan because the loan is a switching loan and it was given after the branch of an inside bank (say Bank 1) was closed. Loan 4is also a first transfer loan. A subsequent switching loan v obtained by Firm A from yet another Bank 5 is called a later transfer loan.

Bank 1

Bank 2Nonswitching loan

Bank 3Switching loan

Bank 4First Transfer Loan

Bank 5Later Transfer Loan

Nonswitching loan

t=-12 t=0

Figure 2. Transfer loans given bank branch and firm location. The figure displays the branch of Bank 1 that is being closed and the location of the other bank branches. Transfer loans are switching loans granted in the period after the bank branch closes by a branch of another bank to firms that are located within 5 kilometers of the closing branch (and that had a relationship with the bank of the closing branch) and that are located more than 5 kilometers from another branch of the bank that closes its branch.

Severed Relationships

Transfer Loans

5 km

Fir

m

Bank 1 Branch

Bank 1 Branch

Bank 2 Branch

Fir

m

Fir

m

Closed

Figure 3. Residual maturity of relationships with the inside bank. The figure displays the distribution of firms that switch banks according to the residual maturity of their inside bank loans. When firms have more than one loan with the inside bank(s) we use the shortest residual maturity.

Figure 4. Switching vs. nonswitching loans at the switcher’s inside bank. The figure displays the analysis in Table IV (Columns I and II), where we compare the loan rate of the switching loan with comparable non-switching new loans from the switcher’s inside banks at the time of the switch, as in Ioannidou and Ongena (2010). The loan granted by Bank 3 to Firm A is the switching loan; all other loans are nonswitching loans.

Figure 5. Switching vs. nonswitching loans at the switcher’s outside bank. The figure displays the analysis in Table IV (Column III) and subsequent tables, where we compare the rate of the switching loan with the rate of comparable nonswitching loans that the switcher’s outside bank originates at the time of the switch, as in Ioannidou and Ongena (2010). The loan granted by Bank 3 to Firm A is the switching loan; all other loans are nonswitching loans.

Figure 6. Impact of closing a branch on market competition. The figure displays the impact of closing a branch on the bank branch Herfindahl-Hirschman Index (HHI). The x-axis shows the percentiles of change in HHI. The y-axis shows the change in HHI for each percentile.

Table ISelected Characteristics of Switching Loans and Nonswitching Loans

Switching loans Nonswitching loans(n=24,292) (n=1,338,829)

Mean St. Dev. Median Mean St. Dev. Median

Interest rate (in basis points) 609*** 268*** 546*** 755 368 643

Risk indicator (100=default) 3.39*** 9.37*** 2.01*** 6.73 19.00 2.35

Defaulted firm (in %) 0.663*** 8.11*** 0*** 3.37 18.00 0

Limited company (in %) 80.3*** 39.8*** 100*** 67.60 46.80 100

Public LLC (in %) 16.1*** 36.7*** 0*** 30.70 46.10 0

Collateralized loan (in %) 66.1*** 47.3*** 100*** 37.90 48.50 0

Loan maturity (months) 28.5*** 36*** 6.13*** 7.0 16.7 2.9

Loan amount (in EUR) 102,721*** 596,717*** 25,000*** 57,347 960,996 9,000

Amount of bank debt (in EUR) 848,602*** 3,563,670*** 89,486*** 3,266,369 12,000,435 597,851

Floating rate loan (in %) 50.6*** 50*** 100*** 81.30 39.00 100

Multiple relationships (in %) 61.8*** 48.6*** 100*** 86.80 33.90 100

Primary lender (in %) 35.4*** 47.8*** 0*** 53.90 49.80 100

Relationship with multiple products (in %) 18.5*** 38.8*** 0*** 84.30 36.40 100

We report the mean, standard deviation, and median for selected loan and firm characteristics. The unit of observation in this table is thenumber (n) of loan initiations for switching and nonswitching loans, respectively. We assess the differences in means using the Student’s t-test. We assess the differences in medians using the Wilcoxon–Mann–Whitney test for continuous variables and the Pearson’s Chi-squaretest for categorical variables. We assess the differences in standard deviations using Levene's test. We indicate whether the differencesbetween the corresponding mean and median values are significant at the 10%, 5%, and 1% levels using ∗, ∗∗, and ∗∗∗, respectively.

Table IISelected Characteristics of Transfer Loans and Nonswitching Loans

Transfer Loans Nonswitching loans(n=1,129) (n=1,338,829)

Mean St. Dev. Median Mean St. Dev. Median

Amount outstanding (EUR Million) 536*** 233*** 521*** 755 368 643

Percentage of defaulted loans (>=1 month) 2.86*** 7.87*** 1.9*** 6.73 19.00 2.35

Branch density 0.53*** 7.27*** 0*** 3.37 18.00 0

Limited company (in %) 74*** 43.9*** 100*** 67.60 46.80 100

Public LLC (in %) 23.6*** 42.5*** 0*** 30.70 46.10 0

Collateralized loan (in %) 59.9*** 49*** 100*** 37.90 48.50 0

Loan maturity (months) 24.1*** 34.5*** 6.03*** 7.0 16.7 2.9

Loan amount (in EUR) 107,924* 393,434* 25,000*** 57,347 960,996 9,000

Amount of bank debt (in EUR) 1,051,500*** 2,281,304*** 312,336*** 3,266,369 12,000,435 597,851

Floating rate loan (in %) 54.7*** 49.8*** 100*** 81.30 39.00 100

Multiple relationships (in %) 86.40 34.3 100 86.80 33.90 100

Primary lender (in %) 22.9*** 42.1*** 0*** 53.90 49.80 100

Relationship with multiple products (in %) 21.2*** 40.9*** 0*** 84.30 36.40 100

We report the mean, standard deviation, and median for selected loan and firm characteristics. The unit of observation in this table is thenumber (n) of loan initiations for transfer and nonswitching loans, respectively. We assess the differences in means using the Student’s t-test. We assess the differences in medians using the Wilcoxon–Mann–Whitney test for continuous variables and the Pearson’s Chi-squaretest for categorical variables. We assess the differences in standard deviations using Levene's test. We indicate whether the differencesbetween the corresponding mean and median values are significant at the 10%, 5%, and 1% levels using ∗, ∗∗, and ∗∗∗, respectively.

Category Matching variables # Possible values

Macro Quarter 13 2012q2 - 2015q2

Bank Inside bank 2= 1 if the firm had a lending relationship with the bank in the last 12 months, and = 0 otherwise

Bank Outside bank 2 = 1 if the firm did not have a lending relationship with the bank in the last 12 months, and = 0otherwise

Bank Foreign bank 2 =1 if bank is part of an international banking group, and = 0 otherwise

Bank Branch density 0 - number of branches per 1,000 adults

Firm Firm 94,281 =1 per firm identity, and = 0 otherwise

Firm Credit rating 6 = 1 if 1st z-score quartile, = 2 if 2nd z-score quartile, = 3 if 3rd z-score quartile, = 4 if 4th z-scorequartile, = 5 if defaulting firm, = 6 if firm without z-score

Firm Region 20Aveiro, Beja, Braga, Bragança, Castelo Branco, Coimbra, Faro, Funchal, Guarda, Leiria, Lisboa,Ponta Delgada, Portalegre, Porto, Santarém, Setúbal, Viana do Castelo,Vila Real, Viseu, Évora

Firm Industry 13 Agriculture, forestry and fishing, mining and quarrying, manufacturing, utilities, construction,wholesale retail and trade, transporting and storage, accomodation and food service activities,information and communication, real estate, finance and insurance, professional/scientific/technicalactivities, other services

Firm Legal structure 3 Sociedade por Quotas, Sociedade Anónima, other legal structure

Firm Multiple bank relationships 2 =1 if firm has multiple bank relationships

Firm Locality 308 County where firm is registered

Firm Size 4 =1 for micro firms =2 for small firms, =3 for medium-sized firms, =4 for large firms

Loan Collateral 2 =1 if loan is collateralized, and = 0 otherwise.

Loan Loan maturity 2= 1 if the matched loans have similar maturity (using a (−30%, +30%) window), and = 0 otherwise

Loan Loan amount 2= 1 if the matched loans have similar amount (using a (−30%, +30%) window), and = 0 otherwise

Loan Floating loan rate 2 = 1 if the interest rate on the loan varies more than 50% of the time, and = 0 otherwise

Table IIIMatching variables

We report the number of possible values (#) and a range (or list) of values for the matching variables

Table IVSpreads between Interest Rates on Switching Loans and Matched Nonswitching Loans

Given by Inside or Outside Banks

BenchmarkMatching Variables I II III IV

Quarter Yes Yes Yes YesInside bank Yes YesOutside bank YesForeign bank YesFirm YesCredit rating Yes Yes Yes YesRegion Yes Yes Yes YesIndustry Yes Yes Yes YesLegal structure Yes Yes Yes YesCollateral Yes Yes Yes YesLoan maturity Yes Yes Yes YesLoan amount Yes Yes Yes YesFloating loan rate Yes Yes Yes Yes

Number of switching loans 6,265 4,231 6,931 1,639Number of nonswitching loans 31,560 20,531 23,892 3,382Number of observations (matched pairs) 50,915 28,181 33,274 7,717

Interest rate difference with matching -122.37*** -88.96*** -58.53*** -91.93***(-7.87) (7.00) (4.60) (12.37)

Interest rate difference without matching -149.07*** -107.83*** -53.28*** -64.67**(8.25) (9.01) (8.60) (31.56)

We assess the spread between the interest rate on switching loans and the interest rate on newnonswitching loans obtained (by other firms) from the switchers’ set of inside banks in ColumnI and II and from the switchers’ set of outside bank in Column III. In Column IV we comparethe rate of switching loans with the rate of non-switching loans obtained by the same firm,excluding non-switching loans given by the outside bank. We match on the indicated variables.All variables are defined in Table III. We regress the spreads on a constant and report thecoefficient on the constant. We weigh each observation by one over the total number ofcomparable nonswitching loans per switching loan. We cluster at the switching-firm level andreport robust standard errors between parentheses. We also report the difference between themean interest rate on the switching loans and the mean interest rate on the nonswitching loansin each column. We report standard errors between parentheses. ∗, ∗∗, and ∗∗∗ indicatesignificance at the 10%, 5%, and 1% levels, two-tailed.

Table V

Spreads between Interest Rates on Switching or Transfer Loans and Matched Nonswitching Loans Given by the Outside Bank When the Closest Branch of the Inside Bank Closes

Switching

Period since the branch closure Before1-6 months

after7-12 months

after>12 months

after

Number of switching / transfer loans 230 68 78 236Number of nonswitching loans 878 295 338 986Number of observations (matched pairs) 1,050 305 535 1,371

Interest rate difference with matching -62.81*** 15.62 -57.30* -94.21***(23.66) (29.55) (33.85) (16.84)

Interest rate difference without matching -79.73*** -180.55*** -209.16*** -263.39***(21.07) (29.88) (28.61) (21.78)

We assess the spread between the interest rate on switching or transfer loans and the interest rate on newnonswitching loans obtained from the switchers’ outside bank (by other firms) when the closest branch of theinside bank closes. We match on the variables indicated in Column III of Table IV. All variables are defined inTable III. We regress the spreads on a constant and report the coefficient on the constant. We weigh eachobservation by one over the total number of comparable nonswitching loans per switching or transfer loan. Wecluster at the switching-firm level and report robust standard errors between parentheses. We also report thedifference between the mean interest rate on the switching or transfer loans and the mean interest rate on thenonswitching loans in each column. We report standard errors between parentheses. ∗, ∗∗, and ∗∗∗ indicatesignificance at the 10%, 5%, and 1% levels, two-tailed.

Transfer

Table VI

Spreads between Interest Rates on Switching or First Transfer Loans and Matched Nonswitching Loans Given by the Outside Bank When the Closest Branch of the Inside Bank Closes

Switching

Period since the branch closure Before1-6 months

after7-12 months

after>12 months

after

Number of switching / first transfer loans 230 62 39 155Number of nonswitching loans 878 283 185 659Number of observations (matched pairs) 1,050 289 235 783

Interest rate difference with matching -62.81*** 25.06 0.77 -96.89***(23.66) (31.13) (25.38) (22.18)

Interest rate difference without matching -79.73*** -163.60*** -239.23*** -229.91***(21.07) (30.83) (31.35) (26.63)

We assess the spread between the interest rate on switching or first transfer loans and the interest rate on newnonswitching loans obtained from the switchers’ outside bank (by other firms) when the closest branch of theinside bank closes. We match on the variables indicated in Column III of Table IV. All variables are defined inTable III. We regress the spreads on a constant and report the coefficient on the constant. We weigh eachobservation by one over the total number of comparable nonswitching loans per switching or first transfer loan.We cluster at the switching-firm level and report robust standard errors between parentheses. We also report thedifference between the mean interest rate on the switching or first transfer loans and the mean interest rate on thenonswitching loans in each column. We report standard errors between parentheses. ∗, ∗∗, and ∗∗∗ indicatesignificance at the 10%, 5%, and 1% levels, two-tailed.

First Transfer

Table VII

Spreads between Interest Rates on Switching or Later Transfer Loans and Matched Nonswitching Loans Given by the Outside Bank When the Closest Branch of the Inside Bank Closes

SwitchingPeriod since the branch closure

Before1-6 months

after7-12 months

after>12 months

after

Number of switching loans 230 6 39 81Number of nonswitching loans 878 16 189 336Number of observations (matched pairs) 1,050 16 300 588

Interest rate difference with matching -62.81*** -81.96 -115.38** -89.09***(23.66) (74.82) (51.13) (24.20)

Interest rate difference without matching -79.73*** -355.67** -179.09*** -327.45***(21.07) (90.54) (45.13) (26.11)

We assess the spread between the interest rate on switching or later transfer loans and the interest rate on newnonswitching loans obtained from the switchers’ outside bank (by other firms) when the closest branch of theinside bank closes. We match on the variables indicated in Column III of Table IV. All variables are defined inTable III. We regress the spreads on a constant and report the coefficient on the constant. We weigh eachobservation by one over the total number of comparable nonswitching loans per switching or later transfer loan.We cluster at the switching-firm level and report robust standard errors between parentheses. We also report thedifference between the mean interest rate on the switching or later transfer loans and the mean interest rate onthe nonswitching loans in each column. We report standard errors between parentheses. ∗, ∗∗, and ∗∗∗ indicatesignificance at the 10%, 5%, and 1% levels, two-tailed.

Later Transfer

Table VIII

Spreads between Interest Rates on Switching or First Transfer Loans and Matched Nonswitching Loans Given the the Same Firm When the Closest Branch of the Inside Bank Closes

Switching

Period since the branch closure Before1-6 months

after7-12 months

after>12 months

after

Number of switching / first transfer loans 68 14 10 36Number of nonswitching loans 121 28 21 56Number of observations (matched pairs) 220 34 67 75

Interest rate difference with matching -212.53*** -62.24 -161.24** -146.62***(73.70) (52.18) (30.89) (40.32)

Interest rate difference without matching -263.61*** -131.02** -243.62*** -275.54***(20.28) (54.97) (25.57) (26.51)

We assess the spread between the interest rate on switching or first transfer loans and the interest rate on newnonswitching loans obtained by the same firm when the closest branch of the inside bank closes. We match onthe variables indicated in Column IV of Table IV and exclude nonswitching loans from the outside bank. Allvariables are defined in Table III. We regress the spreads on a constant and report the coefficient on the constant.We weigh each observation by one over the total number of comparable nonswitching loans per switching or first transfer loan. We cluster at the switching-firm level and report robust standard errors between parentheses. Wealso report the difference between the mean interest rate on the switching or first transfer loans and the meaninterest rate on the nonswitching loans in each column. We report standard errors between parentheses. ∗, ∗∗,and ∗∗∗ indicate significance at the 10%, 5%, and 1% levels, two-tailed.

First Transfer

Table IX

Spreads between Interest Rates on Switching or Later Transfer Loans and Matched Nonswitching Loans Given to the Same Firm When the Closest Branch of the Inside Bank Closes

SwitchingPeriod since the branch closure

Before1-6 months

after7-12 months

after>12 months

after

Number of switching loans 68 0 21 42Number of nonswitching loans 121 0 37 66Number of observations (matched pairs) 220 0 70 191

Constant -212.53*** n.a. -76.67** -119.40**(73.70) n.a. (25.46) (50.29)

Interest rate difference without matching -226.78*** n.a. -247.51*** -293.98***(26.80) n.a. (37.20) (69.66)

We assess the spread between the interest rate on switching or later transfer loans and the interest rate on newnonswitching loans obtained by the same firm when the closest branch of the inside bank closes. We match onthe variables indicated in Column IV of Table IV and exclude nonswitching loans from the outside bank. Allvariables are defined in Table III. We regress the spreads on a constant and report the coefficient on the constant.We weigh each observation by one over the total number of comparable nonswitching loans per switching orlater transfer loan. We cluster at the switching-firm level and report robust standard errors between parentheses.We also report the difference between the mean interest rate on the switching or later transfer loans and the mean interest rate on the nonswitching loans in each column. We report standard errors between parentheses. ∗, ∗∗,and ∗∗∗ indicate significance at the 10%, 5%, and 1% levels, two-tailed.

Later Transfer

Table XSpreads between Interest Rates on Switching or Transfer Loans

Type of transfer All transfers First transfers Later transfers

Number of switching / transfer loans 612 486 356Number of nonswitching loans 2,497 2,005 1,419Number of observations (matched pairs) 3,261 2,357 1,954

Switching discount -62.81*** -62.81*** -62.81***(23.62) (23.63) (23.66)

Tranfer 1-6 months after 78.43** 87.87** -19.15(37.68) (38.91) (72.48)

Tranfer 7-12 months after 5.51 63.58* -52.57(40.92) (34.19) (54.79)

Tranfer >12 months after -31.40 -34.08 -26.28(28.99) (32.37) (33.65)

We assess the spread between the interest rate on switching or transfer loans and the interest rate onnew nonswitching loans obtained from the switchers’ outside bank (by other firms) when theclosest branch of the inside bank closes. We match on the variables indicated in Column III ofTable IV. All variables are defined in Table III. We create a categorical variable to classify loantransfers. Categories are: switching loans that occur before the branch closure; loan transfers 1 to 6months after the closure; loan transfers 6 to 12 months after the closure; loan transfers more than 12months after the closure. We regress the spreads on a constant and on the categorical variable, andreport the coefficient on the constant. We weigh each observation by one over the total number ofcomparable nonswitching loans per switching or first transfer loan. We cluster at the switching-firmlevel and report robust standard errors between parentheses. We also report the difference betweenthe mean interest rate on the switching or first transfer loans and the mean interest rate on thenonswitching loans in each column. We report standard errors between parentheses. ∗, ∗∗, and ∗∗∗indicate significance at the 10%, 5%, and 1% levels, two-tailed.

Table XI

Differences in Loan Conditions on Switching Loans and Matched Loans Given by Outside Banks

I II III IVRate Collateralized loans Maturity Loan amount

0 0 0 0 0Quarter, bank, credit rating, region, industry, legal structure, floating loan rate

Yes Yes Yes Yes

Loan rate Yes Yes YesCollateral Yes Yes YesLoan maturity Yes Yes YesLoan amount Yes Yes Yes

Number of switching loans 6,931 5,997 8,361 10,321Number of nonswitching loans 23,892 19,197 33,275 68,297Number of observations (matched pairs) 33,274 26,532 51,443 122,053

Difference in loan conditions (at time of the switching loan) -58.53*** -0.01 0.63*** 1,621.660 (4.60) (0.01) (0.24) (3,132.36)

We assess the difference in each loan condition on a switching loan and the loan condition on new loans obtained (by otherfirms) from the switchers’ outside bank. We match on the indicated variables (similar to the benchmark model in Column IIIof Table IV). The variables are defined in Table III. We regress the difference in each loan condition on a constant and reportthe coefficient on the constant. We cluster at the switching-firm level and report robust standard errors between parentheses.The results for the loan rate are also in Table IV, Column III. ∗,∗∗, and ∗∗∗ indicate significance at the 10%, 5%, and 1%levels, two-tailed.

Table XIIDifferences in Loan Conditions on Transfer Loans and Matched Nonswitching Loans Given by

Inside Banks

I II III IVRate Collateralized loans Maturity Loan amount

Number of transfer loans 146 125 158 207Number of nonswitching loans 633 549 856 1,736Number of observations (matched pairs) 840 786 1,306 2,903

-23.34 -0.08* -0.46 -12,365.28(24.40) (0.05) (1.52) (8,804.40)

Number of first transfer loans 101 87 113 143Number of nonswitching loans 468 403 652 1,325Number of observations (matched pairs) 524 495 837 1,618

15.68 -0.09 -0.96 -7,630.12(21.44) (0.06) (2.10) (12,179.94)

Number of later transfer loans 45 38 45 64Number of nonswitching loans 205 206 295 560Number of observations (matched pairs) 316 291 469 1,285

-110.92** -0.06 0.79 -22,945.40***(45.39) (0.05) (1.06) (7,820.51)

Difference in loan conditions (at time of the switching loan)

In Panel A, we assess the difference in each loan condition on a transfer loans (i.e., switching loan afterthe closest branch of the inside bank closes) and the loan condition on new nonswitching loans obtained(by other firms) from the switchers’ outside bank. In Panel B we repeat the analysis only for the firsttransfers after the branch closure. In Panel C we do the analysis for the remaining later transfers. Wematch on the indicated variables (similar to the benchmark model in Table VIII). Loans for the threepanels span between the 1st and 12th month after closure. The variables are defined in Table II. Weregress the difference in each loan condition on a constant and report the coefficient on the constant.We cluster at the switching-firm level and report robust standard errors between parentheses. ∗,∗∗, and∗∗∗ indicate significance at the 10%, 5%, and 1% levels, two-tailed.

Panel A: The Difference in Loan Conditions on Transfer and New Nonswitching Loans Obtained (by Other Firms) from the Switchers' Outside Bank

Difference in loan conditions (at time of the switching loan)

Panel B: The Difference in Loan Conditions on First Transfer and New Nonswitching Loans Obtained (by Other Firms) from the Switchers' Outside Bank

Difference in loan conditions (at time of the switching loan)

Panel C: The Difference in Loan Conditions on Later Transfer and New Nonswitching Loans Obtained (by Other Firms) from the Switchers' Outside Bank

 

 

 

Internet Appendices 1 to 13  

Most Appendices contain Tables IV to VII only. 

The table numbering maps into the main table numbering. 

 

Appendix 1 Table IV

Spreads between Interest Rates on Switching Loans and Matched Nonswitching Loans Given by Inside or Outside Banks Excluding Loans Given In or After December 2014

BenchmarkMatching Variables I II III IV

Quarter Yes Yes Yes YesInside bank Yes YesOutside bank YesForeign bank YesFirm YesCredit rating Yes Yes Yes YesRegion Yes Yes Yes YesIndustry Yes Yes Yes YesLegal structure Yes Yes Yes YesCollateral Yes Yes Yes YesLoan maturity Yes Yes Yes YesLoan amount Yes Yes Yes YesFloating loan rate Yes Yes Yes Yes

Number of switching loans 4,794 3,312 5,357 1,255Number of nonswitching loans 24,979 16,675 19,107 2,668Number of observations (matched pairs) 40,693 23,051 26,940 6,267

Interest rate difference with matching -124.24*** -89.35*** -60.59*** -87.90***(9.78) (8.37) (5.35) (14.59)

Interest rate difference without matching -116.36*** -111.15*** -57.46*** -59.36(7.67) (10.58) (9.88) (38.44)

We assess the spread between the interest rate on switching loans and the interest rate on newnonswitching loans obtained (by other firms) from the switchers’ set of inside banks in ColumnI and II and from the switchers’ set of outside bank in Column III. In Column IV we comparethe rate of switching loans with the rate of non-switching loans obtained by the same firm,excluding non-switching loans given by the outside bank. We match on the indicated variables.All variables are defined in Table III. We regress the spreads on a constant and report thecoefficient on the constant. We weigh each observation by one over the total number ofcomparable nonswitching loans per switching loan. We cluster at the switching-firm level andreport robust standard errors between parentheses. We also report the difference between themean interest rate on the switching loans and the mean interest rate on the nonswitching loansin each column. We report standard errors between parentheses. ∗, ∗∗, and ∗∗∗ indicatesignificance at the 10%, 5%, and 1% levels, two-tailed.

Appendix 1 Table V

Spreads between Interest Rates on Switching or Transfer Loans and Matched Nonswitching Loans Given by the Outside Bank When the Closest Branch of the Inside Bank Closes Before December 2014

Switching

Period since the branch closure Before1-6 months

after7-12 months

after>12 months

after

Number of switching / transfer loans 208 36 47 158Number of nonswitching loans 800 202 179 673Number of observations (matched pairs) 964 209 266 960

Interest rate difference with matching -75.22*** 11.79 -56.12 -107.57***(23.74) (46.07) (56.05) (21.43)

Interest rate difference without matching -126.08*** -120.28*** -140.31 -138.17(23.88) (42.83) (95.43) (111.40)

We assess the spread between the interest rate on switching or transfer loans and the interest rate on newnonswitching loans obtained from the switchers’ outside bank (by other firms) when the closest branch of theinside bank closes. We match on the variables indicated in Column III of Table A1 IV. All variables are definedin Table III. We regress the spreads on a constant and report the coefficient on the constant. We weigh eachobservation by one over the total number of comparable nonswitching loans per switching or transfer loan. Wecluster at the switching-firm level and report robust standard errors between parentheses. We also report thedifference between the mean interest rate on the switching or transfer loans and the mean interest rate on thenonswitching loans in each column. We report standard errors between parentheses. ∗, ∗∗, and ∗∗∗ indicatesignificance at the 10%, 5%, and 1% levels, two-tailed.

Transfer

Appendix 1 Table VI

Spreads between Interest Rates on Switching or First Transfer Loans and Matched Nonswitching Loans Given by the Outside Bank When the Closest Branch of the Inside Bank Closes Before December 2014

Switching

Period since the branch closure Before1-6 months

after7-12 months

after>12 months

after

Number of switching / first transfer loans 208 33 18 110Number of nonswitching loans 800 196 91 501Number of observations (matched pairs) 964 199 91 604

Interest rate difference with matching -75.22*** 5.35 60.14 -114.53***(23.74) (49.11) (48.71) (28.36)

Interest rate difference without matching -126.08*** -115.79** -27.32 -85.00(23.88) (44.51) (108.35) (138.00)

We assess the spread between the interest rate on switching or first transfer loans and the interest rate on newnonswitching loans obtained from the switchers’ outside bank (by other firms) when the closest branch of theinside bank closes. We match on the variables indicated in Column III of Table A1 IV. All variables are definedin Table III. We regress the spreads on a constant and report the coefficient on the constant. We weigh eachobservation by one over the total number of comparable nonswitching loans per switching or first transfer loan.We cluster at the switching-firm level and report robust standard errors between parentheses. We also report thedifference between the mean interest rate on the switching or first transfer loans and the mean interest rate on thenonswitching loans in each column. We report standard errors between parentheses. ∗, ∗∗, and ∗∗∗ indicatesignificance at the 10%, 5%, and 1% levels, two-tailed.

First Transfer

Appendix 1 Table VII

Spreads between Interest Rates on Switching or Later Transfers and Matched Nonswitching Loans Given by the Outside Bank When the Closest Branch of the Inside Bank Closes Before December 2014

Switching

Period since the branch closure Before1-6 months

after7-12 months

after>12 months

after

Number of switching / later transfer loans 208 3 29 48Number of nonswitching loans 800 10 96 180Number of observations (matched pairs) 964 10 175 356

Interest rate difference with matching -75.22*** 82.65 -128.29* -91.61***(23.74) (42.31) (66.15) (28.08)

Interest rate difference without matching -126.08*** -225.26** -257.97*** -300.08***(23.88) (50.68) (48.24) (43.10)

We assess the spread between the interest rate on switching or later transfer loans and the interest rate on newnonswitching loans obtained from the switchers’ outside bank (by other firms) when the closest branch of theinside bank closes. We match on the variables indicated in Column III of Table A1 IV. All variables are definedin Table III. We regress the spreads on a constant and report the coefficient on the constant. We weigh eachobservation by one over the total number of comparable nonswitching loans per switching or first transfer loan.We cluster at the switching-firm level and report robust standard errors between parentheses. We also report thedifference between the mean interest rate on the switching or first transfer loans and the mean interest rate on thenonswitching loans in each column. We report standard errors between parentheses. ∗, ∗∗, and ∗∗∗ indicatesignificance at the 10%, 5%, and 1% levels, two-tailed.

Later Transfer

Appendix 2 Table IV

Spreads between Interest Rates on Switching Loans and Matched Nonswitching Loans Given by Inside or Outside Banks Outside of Lisbon and Porto

BenchmarkMatching Variables I II III IV

Quarter Yes Yes Yes YesInside bank Yes YesOutside bank YesForeign bank YesFirm YesCredit rating Yes Yes Yes YesRegion Yes Yes Yes YesIndustry Yes Yes Yes YesLegal structure Yes Yes Yes YesCollateral Yes Yes Yes YesLoan maturity Yes Yes Yes YesLoan amount Yes Yes Yes YesFloating loan rate Yes Yes Yes Yes

Number of switching loans 3,197 2,218 3,392 1,095Number of nonswitching loans 15,140 9,875 10,668 2,442Number of observations (matched pairs) 22,668 13,510 13,949 5,553

Interest rate difference with matching -117.08*** -98.30*** -61.27*** -95.41***(9.16) (9.43) (6.85) (15.27)

Interest rate difference without matching -117.08*** -80.37*** -38.53*** -61.80(8.62) (12.54) (10.56) (38.04)

We assess the spread between the interest rate on switching loans and the interest rate on newnonswitching loans obtained (by other firms) from the switchers’ set of inside banks in ColumnI and II and from the switchers’ set of outside bank in Column III. In Column IV we comparethe rate of switching loans with the rate of non-switching loans obtained by the same firm,excluding non-switching loans given by the outside bank. We match on the indicated variables.All variables are defined in Table III. We regress the spreads on a constant and report thecoefficient on the constant. We weigh each observation by one over the total number ofcomparable nonswitching loans per switching loan. We cluster at the switching-firm level andreport robust standard errors between parentheses. We also report the difference between themean interest rate on the switching loans and the mean interest rate on the nonswitching loansin each column. We report standard errors between parentheses. ∗, ∗∗, and ∗∗∗ indicatesignificance at the 10%, 5%, and 1% levels, two-tailed.

Appendix 2 Table V

Spreads between Interest Rates on Switching or Transfer Loans and Matched Nonswitching Loans Given by the Outside Bank When the Closest Branch of the Inside Bank Closes Outside Lisbon and Porto

Switching

Period since the branch closure Before1-6 months

after7-12 months

after>12 months

after

Number of switching / transfer loans 125 43 48 161Number of nonswitching loans 497 210 213 571Number of observations (matched pairs) 591 217 304 833

Interest rate difference with matching -90.80*** 10.60 -72.38 -94.30***(32.93) (37.58) (50.84) (18.56)

Interest rate difference without matching -135.60*** -132.92*** -147.44 -299.99***(29.33) (37.57) (90.32) (25.70)

We assess the spread between the interest rate on switching or transfer loans and the interest rate on newnonswitching loans obtained from the switchers’ outside bank (by other firms) when the closest branch of theinside bank closes. We match on the variables indicated in Column III of Table A2 IV. All variables are definedin Table III. We regress the spreads on a constant and report the coefficient on the constant. We weigh eachobservation by one over the total number of comparable nonswitching loans per switching or transfer loan. Wecluster at the switching-firm level and report robust standard errors between parentheses. We also report thedifference between the mean interest rate on the switching or transfer loans and the mean interest rate on thenonswitching loans in each column. We report standard errors between parentheses. ∗, ∗∗, and ∗∗∗ indicatesignificance at the 10%, 5%, and 1% levels, two-tailed.

Transfer

Appendix 2 Table VI

Spreads between Interest Rates on Switching or First Transfer Loans and Matched Nonswitching Loans Given by the Outside Bank When the Closest Branch of the Inside Bank Closes Outside Lisbon and Porto

Switching

Period since the branch closure Before1-6 months

after7-12 months

after>12 months

after

Number of switching / first transfer loans 125 37 20 100Number of nonswitching loans 497 198 129 286Number of observations (matched pairs) 591 201 129 317

Interest rate difference with matching -90.80*** 25.62 2.11 -102.36***(32.93) (40.95) (44.75) (24.48)

Interest rate difference without matching -135.60*** -122.64*** -105.86 -254.81***(29.33) (40.07) (131.72) (32.15)

We assess the spread between the interest rate on switching or first transfer loans and the interest rate on newnonswitching loans obtained from the switchers’ outside bank (by other firms) when the closest branch of theinside bank closes. We match on the variables indicated in Column III of Table A2 IV. All variables are definedin Table III. We regress the spreads on a constant and report the coefficient on the constant. We weigh eachobservation by one over the total number of comparable nonswitching loans per switching or first transfer loan.We cluster at the switching-firm level and report robust standard errors between parentheses. We also report thedifference between the mean interest rate on the switching or first transfer loans and the mean interest rate on thenonswitching loans in each column. We report standard errors between parentheses. ∗, ∗∗, and ∗∗∗ indicatesignificance at the 10%, 5%, and 1% levels, two-tailed.

First Transfer

Appendix 2 Table VII

Spreads between Interest Rates on Switching or Later Transfers and Matched Nonswitching Loans Given by the Outside Bank When the Closest Branch of the Inside Bank Closes Outside Lisbon and Porto

Switching

Period since the branch closure Before1-6 months

after7-12 months

after>12 months

after

Number of switching / later transfer loans 125 6 28 61Number of nonswitching loans 497 16 96 286Number of observations (matched pairs) 591 16 175 516

Interest rate difference with matching -90.80*** -81.96 -125.58 -81.09***(32.93) (74.82) (69.77) (27.40)

Interest rate difference without matching -135.60*** -256.73*** -212.79*** -345.17***(29.33) (59.10) (49.01) (28.66)

We assess the spread between the interest rate on switching or later transfer loans and the interest rate on newnonswitching loans obtained from the switchers’ outside bank (by other firms) when the closest branch of theinside bank closes. We match on the variables indicated in Column III of Table A2 IV. All variables are definedin Table III. We regress the spreads on a constant and report the coefficient on the constant. We weigh eachobservation by one over the total number of comparable nonswitching loans per switching or first transfer loan.We cluster at the switching-firm level and report robust standard errors between parentheses. We also report thedifference between the mean interest rate on the switching or first transfer loans and the mean interest rate on thenonswitching loans in each column. We report standard errors between parentheses. ∗, ∗∗, and ∗∗∗ indicatesignificance at the 10%, 5%, and 1% levels, two-tailed.

Later Transfer

Appendix 3 Table IVSpreads between Interest Rates on Switching Loans and Matched Nonswitching Loans Given by Inside or Outside Banks - Areas Where Branch Closure Has Low Impact on

Competition

BenchmarkMatching Variables I II III IV

Quarter Yes Yes Yes YesInside bank Yes YesOutside bank YesForeign bank YesFirm YesCredit rating Yes Yes Yes YesRegion Yes Yes Yes YesIndustry Yes Yes Yes YesLegal structure Yes Yes Yes YesCollateral Yes Yes Yes YesLoan maturity Yes Yes Yes YesLoan amount Yes Yes Yes YesFloating loan rate Yes Yes Yes Yes

Number of switching loans 2,364 4,231 6,931 1,639Number of nonswitching loans 5,521 20,531 23,892 3,382Number of observations (matched pairs) 8,788 28,181 33,274 12,906

Interest rate difference with matching -122.37*** -88.96*** -58.53*** -91.93***(-7.87) (7.00) (4.60) (12.37)

Interest rate difference without matching -149.07*** -107.83*** -53.28*** -64.67**(8.25) (9.01) (8.60) (31.56)

We assess the spread between the interest rate on switching loans and the interest rate on newnonswitching loans obtained (by other firms) from the switchers’ set of inside banks in ColumnI and II and from the switchers’ set of outside bank in Column III. In Column IV we comparethe rate of switching loans with the rate of non-switching loans obtained by the same firm,excluding non-switching loans given by the outside bank. We match on the indicated variables.All variables are defined in Table III. We regress the spreads on a constant and report thecoefficient on the constant. We weigh each observation by one over the total number ofcomparable nonswitching loans per switching loan. We cluster at the switching-firm level andreport robust standard errors between parentheses. We also report the difference between themean interest rate on the switching loans and the mean interest rate on the nonswitching loansin each column. We report standard errors between parentheses. ∗, ∗∗, and ∗∗∗ indicatesignificance at the 10%, 5%, and 1% levels, two-tailed.

Appendix 3 Table VSpreads between Interest Rates on Switching or Transfer Loans and Matched Nonswitching Loans Given by the Outside Bank When the Closest Branch of the Inside Bank Closes - Areas Where Branch Closure

Has Low Impact on Competition

Switching

Period since the branch closure Before1-6 months

after7-12 months

after>12 months

after

Number of switching / transfer loans 94 35 39 78Number of nonswitching loans 322 110 129 244Number of observations (matched pairs) 396 120 252 423

Interest rate difference with matching -66.67 12.08 -97.58* -139.84***(47.75) (39.97) (49.23) (24.49)

Interest rate difference without matching -89.59** -122.81*** -260.41*** -276.45***(35.99) (42.56) (35.41) (32.24)

We assess the spread between the interest rate on switching or transfer loans and the interest rate on newnonswitching loans obtained from the switchers’ outside bank (by other firms) when the closest branch of theinside bank closes. We match on the variables indicated in Column III of Table A3 IV. All variables are definedin Table III. We regress the spreads on a constant and report the coefficient on the constant. We weigh eachobservation by one over the total number of comparable nonswitching loans per switching or transfer loan. Wecluster at the switching-firm level and report robust standard errors between parentheses. We also report thedifference between the mean interest rate on the switching or transfer loans and the mean interest rate on thenonswitching loans in each column. We report standard errors between parentheses. ∗, ∗∗, and ∗∗∗ indicatesignificance at the 10%, 5%, and 1% levels, two-tailed.

Transfer

Appendix 3 Table VI

Spreads between Interest Rates on Switching or First Transfer Loans and Matched Nonswitching Loans Given by the Outside Bank When the Closest Branch of the Inside Bank Closes - Areas

Where Branch Closure Has Low Impact on Competition

Switching

Period since the branch closure Before1-6 months

after7-12 months

after>12 months

after

Number of switching / first transfer loans 94 31 16 38Number of nonswitching loans 322 105 51 133Number of observations (matched pairs) 396 111 101 160

Interest rate difference with matching -66.67 24.05 -1.78 -128.45***(47.75) (42.96) (26.01) (42.36)

Interest rate difference without matching -89.59** -112.02** -308.21*** -218.86***(35.99) (43.58) (65.82) (15.20)

We assess the spread between the interest rate on switching or first transfer loans and the interest rateon new nonswitching loans obtained from the switchers’ outside bank (by other firms) when the closestbranch of the inside bank closes. We match on the variables indicated in Column III of Table A3 IV.All variables are defined in Table III. We regress the spreads on a constant and report the coefficient onthe constant. We weigh each observation by one over the total number of comparable nonswitchingloans per switching or first transfer loan. We cluster at the switching-firm level and report robuststandard errors between parentheses. We also report the difference between the mean interest rate onthe switching or first transfer loans and the mean interest rate on the nonswitching loans in eachcolumn. We report standard errors between parentheses. ∗, ∗∗, and ∗∗∗ indicate significance at the 10%,5%, and 1% levels, two-tailed.

First Transfer

SwitchingPeriod since the branch closure

Before1-6 months

after7-12 months

after>12 months

after

Number of switching loans 94 4 23 40Number of nonswitching loans 322 9 102 102Number of observations (matched pairs) 396 9 151 263

Interest rate difference with matching -66.67 -80.67 -164.22** -150.67***(47.75) (94.10) (51.33) (27.34)

Interest rate difference without matching -89.59** -252.25* -227.19*** -345.13***(35.99) (101.93) (19.72) (40.10)

We assess the spread between the interest rate on switching or later transfer loans and the interest rate on newnonswitching loans obtained from the switchers’ outside bank (by other firms) when the closest branch of theinside bank closes. We match on the variables indicated in Column III of Table A3 IV. All variables are definedin Table III. We regress the spreads on a constant and report the coefficient on the constant. We weigh eachobservation by one over the total number of comparable nonswitching loans per switching or later transfer loan.We cluster at the switching-firm level and report robust standard errors between parentheses. We also report thedifference between the mean interest rate on the switching or later transfer loans and the mean interest rate onthe nonswitching loans in each column. We report standard errors between parentheses. ∗, ∗∗, and ∗∗∗ indicatesignificance at the 10%, 5%, and 1% levels, two-tailed.

Later Transfer

Appendix 3 Table VIISpreads between Interest Rates on Switching or Later Transfer Loans and Matched Nonswitching Loans

Given by the Outside Bank When the Closest Branch of the Inside Bank Closes - Areas Where Branch Closure Has Low Impact on Competition

Appendix 4 Table ISelected Characteristics of Closing and Non-closing Branches

Closing branches Other branches(n=1,336) (n=496,686)

Mean St. Dev. Median Mean St. Dev. Median

Amount outstanding (EUR Million) 18.1 33.7 7.51 17.7 36.1 7.76

Percentage of defaulted loans (>=1 month) 22.8*** 11.8*** 21.1*** 18.20 10.70 16.70

Branch density 1.21 .537 1.04 1.21 .542 1.06

We report the mean, standard deviation, and median for bank branches characteristics. The unit of observation in this table is the number(n ) of branch-month pairs from closing and non-closing branches, respectively. Branch density refers to the number of branches per 1,000adults. We assess the differences in means using the Student’s t-test. We assess the differences in medians using theWilcoxon–Mann–Whitney test for continuous variables. We assess the differences in standard deviations using Levene's test. We indicatewhether the differences between the corresponding mean and median values are significant at the 10%, 5%, and 1% levels using ∗, ∗∗, and∗∗∗, respectively.

Appendix 4 Table IIProbability of Branch Closure

Specification

Linear Probability

Model Probit

Amount outstanding (EUR Million) -0.00* -0.00*(0.00) (0.00)

Percentage of defaulted loans (>=1 month) 0.002 0.002(0.001) (0.003)

Branch density 0.01*** 0.03***

(0.00) (0.00)

County fixed effects Yes YesBank-time fixed effects Yes NoTime fixed effects No YesBank fixed effects No Yes

We assess the probability that branches close in a given month. We regress adummy variable that marks whether each branch closes in a given month on thevariables defined below. Branch density refers to the number of branches per1,000 adults. We use separate linear probability and probit specifications. Wecluster at the bank level and report robust standard errors between parentheses. ∗,∗∗, and ∗∗∗ indicate significance at the 10%, 5%, and 1% levels, two-tailed.

Appendix 4 Table V

Spreads between Interest Rates on Switching or Transfer Loans and Matched Nonswitching Loans Given by the Outside Bank When the Closest Branch of the Inside Bank Closes - Unlikely Branch Closures

Switching

Period since the branch closure Before1-6 months

after7-12 months

after>12 months

after

Number of switching / transfer loans 31 15 12 123Number of nonswitching loans 211 100 67 613Number of observations (matched pairs) 255 106 84 796

Interest rate difference with matching -64.74** 10.54 -137.31** -65.43***(27.71) (54.96) (41.96) (22.81)

Interest rate difference without matching -166.54*** -165.17** 45.73 -118.97(42.18) (69.93) (138.45) (126.84)

We assess the spread between the interest rate on switching or transfer loans and the interest rate on newnonswitching loans obtained from the switchers’ outside bank (by other firms) when the closest branch of theinside bank closes. We use the estimates of the probability of branch closures to divide transfers in threequantiles and use only transfers from branches that are the least likely to close. We match on the variablesindicated in Column III of Table IV. All variables are defined in Table III. We regress the spreads on a constantand report the coefficient on the constant. We weigh each observation by one over the total number ofcomparable nonswitching loans per switching or transfer loan. We cluster at the switching-firm level and reportrobust standard errors between parentheses. We also report the difference between the mean interest rate on theswitching or transfer loans and the mean interest rate on the nonswitching loans in each column. We reportstandard errors between parentheses. ∗, ∗∗, and ∗∗∗ indicate significance at the 10%, 5%, and 1% levels, two-tailed.

Transfer

Appendix 4 Table VISpreads between Interest Rates on Switching or First Transfer Loans and Matched Nonswitching Loans

Given by the Outside Bank When the Closest Branch of the Inside Bank Closes - Unlikely Branch Closures

Switching

Period since the branch closure Before1-6 months

after7-12 months

after>12 months

after

Number of switching / transfer loans 31 12 5 88Number of nonswitching loans 211 97 50 424Number of observations (matched pairs) 255 99 50 518

Interest rate difference with matching -64.74** 23.18 -136.08 -72.49**(27.71) (60.96) (97.60) -27.72

Interest rate difference without matching -166.54*** -161.98** 148.94* -27.36(42.18) (71.82) (67.10) (158.31)

We assess the spread between the interest rate on switching or transfer loans and the interest rate on newnonswitching loans obtained from the switchers’ outside bank (by other firms) when the closest branch of theinside bank closes. We use the estimates of the probability of branch closures to divide transfers in threequantiles and use only transfers from branches that are the least likely to close. We match on the variablesindicated in Column III of Table IV. All variables are defined in Table III. We regress the spreads on a constantand report the coefficient on the constant. We weigh each observation by one over the total number ofcomparable nonswitching loans per switching or transfer loan. We cluster at the switching-firm level and reportrobust standard errors between parentheses. We also report the difference between the mean interest rate on theswitching or transfer loans and the mean interest rate on the nonswitching loans in each column. We reportstandard errors between parentheses. ∗, ∗∗, and ∗∗∗ indicate significance at the 10%, 5%, and 1% levels, two-tailed.

First transfer

Appendix 4 Table VIISpreads between Interest Rates on Switching or Later Transfer Loans and Matched Nonswitching Loans

Given by the Outside Bank When the Closest Branch of the Inside Bank Closes - Unlikely Branch Closures

Switching

Period since the branch closure Before1-6 months

after7-12 months

after>12 months

after

Number of switching / transfer loans 31 3 7 35Number of nonswitching loans 211 7 17 190Number of observations (matched pairs) 255 7 34 278

Interest rate difference with matching -64.74** -40.05 -138.19 -47.67(27.71) (117.19) (32.43) (32.88)

Interest rate difference without matching -166.54*** -189.70 -257.81** -325.26***(42.18) (67.74) (9.82) (46.27)

We assess the spread between the interest rate on switching or transfer loans and the interest rate on newnonswitching loans obtained from the switchers’ outside bank (by other firms) when the closest branch of theinside bank closes. We use the estimates of the probability of branch closures to divide transfers in threequantiles and use only transfers from branches that are the least likely to close. We match on the variablesindicated in Column III of Table IV. All variables are defined in Table III. We regress the spreads on a constantand report the coefficient on the constant. We weigh each observation by one over the total number ofcomparable nonswitching loans per switching or transfer loan. We cluster at the switching-firm level and reportrobust standard errors between parentheses. We also report the difference between the mean interest rate on theswitching or transfer loans and the mean interest rate on the nonswitching loans in each column. We reportstandard errors between parentheses. ∗, ∗∗, and ∗∗∗ indicate significance at the 10%, 5%, and 1% levels, two-tailed.

Late transfer

Appendix 5 Table VSpreads between Interest Rates on Switching or Transfer Loans and Matched Nonswitching Loans Given by the Outside Bank When the Closest Branch of the Inside Bank Closes - High Competition Areas, Small

Banks

Switching

Period since the branch closure Before1-6 months

after7-12 months

after>12 months

after

Number of switching / transfer loans 31 14 16 28Number of nonswitching loans 45 31 22 60Number of observations (matched pairs) 52 36 39 90

Interest rate difference with matching -205.39** 69.63 -173.31** -158.57***(92.21) (70.67) (64.16) (38.30)

Interest rate difference without matching 3.76 -38.28 -363.15* -265.70***(61.17) (126.67) (131.10) (48.84)

We assess the spread between the interest rate on switching or transfer loans and the interest rate on newnonswitching loans obtained from the switchers’ outside bank (by other firms) when the closest branch of theinside bank closes. We exclude outside banks with the highest market share that represent up to 80% of all loans. We match on the variables indicated in Column III of Table IV. All variables are defined in Table III. We regressthe spreads on a constant and report the coefficient on the constant. We weigh each observation by one over thetotal number of comparable nonswitching loans per switching or transfer loan. We cluster at the switching-firmlevel and report robust standard errors between parentheses. We also report the difference between the meaninterest rate on the switching or transfer loans and the mean interest rate on the nonswitching loans in eachcolumn. We report standard errors between parentheses. ∗, ∗∗, and ∗∗∗ indicate significance at the 10%, 5%, and1% levels, two-tailed.

Transfer

Appendix 6 Table IV

Spreads between Interest Rates on Switching Loans and Matched Nonswitching Loans Given by Inside or Outside Banks - Matching on Locality

BenchmarkMatching Variables I II III IV

Quarter Yes Yes Yes YesInside bank Yes YesOutside bank YesForeign bank YesFirm YesCredit rating Yes Yes Yes YesLocality Yes Yes Yes YesIndustry Yes Yes Yes YesLegal structureCollateralLoan maturity Yes Yes Yes YesLoan amount Yes Yes Yes YesFloating loan rate

Number of switching loans 4,640 3,277 3,594 1,639Number of nonswitching loans 18,745 12,433 9,364 3,382Number of observations (matched pairs) 29,276 17,922 13,741 7,717

Interest rate difference with matching -132.97*** -106.60*** -56.20*** -91.93***(10.20) (8.52) (7.41) (12.37)

Interest rate difference without matching -110.57*** -72.29*** -10.64 -64.67**(10.24) (10.80) (13.04) (31.56)

We assess the spread between the interest rate on switching loans and the interest rate on newnonswitching loans obtained (by other firms) from the switchers’ set of inside banks in ColumnI and II and from the switchers’ set of outside bank in Column III. In Column IV we comparethe rate of switching loans with the rate of non-switching loans obtained by the same firm,excluding non-switching loans given by the outside bank. We match on the indicated variables.All variables are defined in Table III. We regress the spreads on a constant and report thecoefficient on the constant. We weigh each observation by one over the total number ofcomparable nonswitching loans per switching loan. We cluster at the switching-firm level andreport robust standard errors between parentheses. We also report the difference between themean interest rate on the switching loans and the mean interest rate on the nonswitching loansin each column. We report standard errors between parentheses. ∗, ∗∗, and ∗∗∗ indicatesignificance at the 10%, 5%, and 1% levels, two-tailed.

Appendix 6 Table V

Spreads between Interest Rates on Switching or Transfer Loans and Matched Nonswitching Loans Given by the Outside Bank When the Closest Branch of the Inside Bank Closes - Matching on Locality

Switching

Period since the branch closure Before1-6 months

after7-12 months

after>12 months

after

Number of switching / transfer loans 117 33 55 142Number of nonswitching loans 308 91 305 361Number of observations (matched pairs) 386 96 617 576

Interest rate difference with matching -128.37*** -74.13 -170.93** -67.70***(42.36) (51.51) (67.50) (24.87)

Interest rate difference without matching -106.63*** -120.33** -248.35*** -277.08***(38.70) (44.75) (14.11) (33.24)

We assess the spread between the interest rate on switching or transfer loans and the interest rate on newnonswitching loans obtained from the switchers’ outside bank (by other firms) when the closest branch of theinside bank closes. We match on the variables indicated in Column III of Table A4 IV. All variables are definedin Table III. We regress the spreads on a constant and report the coefficient on the constant. We weigh eachobservation by one over the total number of comparable nonswitching loans per switching or transfer loan. Wecluster at the switching-firm level and report robust standard errors between parentheses. We also report thedifference between the mean interest rate on the switching or transfer loans and the mean interest rate on thenonswitching loans in each column. We report standard errors between parentheses. ∗, ∗∗, and ∗∗∗ indicatesignificance at the 10%, 5%, and 1% levels, two-tailed.

Transfer

Appendix 6 Table VI

Switching

Period since the branch closure Before1-6 months

after7-12 months

after>12 months

after

Number of switching / first transfer loans 117 27 18 73Number of nonswitching loans 308 82 43 173Number of observations (matched pairs) 386 85 67 188

Interest rate difference with matching -128.37*** -95.03* -89.85*** -88.71**(42.36) (52.96) (27.40) (40.30)

Interest rate difference without matching -106.63*** -108.06** -193.83** -189.35***(38.70) (46.60) (73.88) (47.12)

We assess the spread between the interest rate on switching or first transfer loans and the interest rate on newnonswitching loans obtained from the switchers’ outside bank (by other firms) when the closest branch of theinside bank closes. We match on the variables indicated in Column III of Table A4 IV. All variables are definedin Table III. We regress the spreads on a constant and report the coefficient on the constant. We weigh eachobservation by one over the total number of comparable nonswitching loans per switching or first transfer loan.We cluster at the switching-firm level and report robust standard errors between parentheses. We also report thedifference between the mean interest rate on the switching or first transfer loans and the mean interest rate on thenonswitching loans in each column. We report standard errors between parentheses. ∗, ∗∗, and ∗∗∗ indicatesignificance at the 10%, 5%, and 1% levels, two-tailed.

First Transfer

Spreads between Interest Rates on Switching or First Transfer Loans and Matched Nonswitching Loans Given by the Outside Bank When the Closest Branch of the Inside Bank Closes - Matching on Locality

Appendix 6 Table VII

Spreads between Interest Rates on Switching or Later Transfer Loans and Matched Nonswitching Loans Given by the Outside Bank When the Closest Branch of the Inside Bank Closes - Matching on Locality

SwitchingPeriod since the branch closure

Before1-6 months

after7-12 months

after>12 months

after

Number of switching loans 117 6 37 69Number of nonswitching loans 308 10 277 195Number of observations (matched pairs) 386 11 550 388

Interest rate difference with matching -128.37*** 19.89 -210.38* -45.46*(42.36) (135.02) (89.82) (23.43)

Interest rate difference without matching -106.63*** -222.01*** -255.57*** -357.18***(38.70) (24.28) (6.62) (18.21)

We assess the spread between the interest rate on switching or later transfer loans and the interest rate on newnonswitching loans obtained from the switchers’ outside bank (by other firms) when the closest branch of theinside bank closes. We match on the variables indicated in Column III of Table A4 IV. All variables are definedin Table III. We regress the spreads on a constant and report the coefficient on the constant. We weigh eachobservation by one over the total number of comparable nonswitching loans per switching or later transfer loan.We cluster at the switching-firm level and report robust standard errors between parentheses. We also report thedifference between the mean interest rate on the switching or later transfer loans and the mean interest rate onthe nonswitching loans in each column. We report standard errors between parentheses. ∗, ∗∗, and ∗∗∗ indicatesignificance at the 10%, 5%, and 1% levels, two-tailed.

Later Transfer

Appendix 7 Table IV

Spreads between Interest Rates on Switching Loans and Matched Nonswitching Loans Given by Inside or Outside Banks - Matching on Branch Density

BenchmarkMatching Variables I II III IV

Quarter Yes Yes Yes YesInside bank Yes YesOutside bank YesForeign bank YesFirm YesCredit rating Yes Yes Yes YesBranch density Yes Yes Yes YesIndustry Yes Yes Yes YesRegion Yes Yes Yes YesLegal structure Yes Yes Yes YesCollateral Yes Yes Yes YesLoan maturity Yes Yes Yes YesLoan amount Yes Yes Yes YesFloating loan rate Yes Yes Yes Yes

Number of switching loans 4,780 3,210 5,034 1,639Number of nonswitching loans 19,153 12,325 14,566 3,382Number of observations (matched pairs) 30,285 16,851 20,558 7,717

Interest rate difference with matching -135.35*** -97.56*** -60.66*** -91.93***(10.65) (8.37) (5.52) (12.37)

Interest rate difference without matching -145.37*** -102.26*** -50.10*** -64.67**(10.08) (10.00) (10.47) (31.56)

We assess the spread between the interest rate on switching loans and the interest rate on newnonswitching loans obtained (by other firms) from the switchers’ set of inside banks in ColumnI and II and from the switchers’ set of outside bank in Column III. In Column IV we comparethe rate of switching loans with the rate of non-switching loans obtained by the same firm,excluding non-switching loans given by the outside bank. We match on the indicated variables.All variables are defined in Table III. We regress the spreads on a constant and report thecoefficient on the constant. We weigh each observation by one over the total number ofcomparable nonswitching loans per switching loan. We cluster at the switching-firm level andreport robust standard errors between parentheses. We also report the difference between themean interest rate on the switching loans and the mean interest rate on the nonswitching loansin each column. We report standard errors between parentheses. ∗, ∗∗, and ∗∗∗ indicatesignificance at the 10%, 5%, and 1% levels, two-tailed.

Appendix 7 Table V

Spreads between Interest Rates on Switching or Transfer Loans and Matched Nonswitching Loans Given by the Outside Bank When the Closest Branch of the Inside Bank Closes - Matching on Branch Density

Switching

Period since the branch closure Before1-6 months

after7-12 months

after>12 months

after

Number of switching / transfer loans 172 45 65 176Number of nonswitching loans 531 170 217 610Number of observations (matched pairs) 655 173 333 793

Interest rate difference with matching -79.11*** -17.99 -65.06*** -84.93***(28.07) (39.24) (19.12) (22.38)

Interest rate difference without matching -124.00*** -110.82*** -207.18*** -175.17(26.39) (36.81) (75.00) (107.35)

We assess the spread between the interest rate on switching or transfer loans and the interest rate on newnonswitching loans obtained from the switchers’ outside bank (by other firms) when the closest branch of theinside bank closes. We match on the variables indicated in Column III of Table A5 IV. All variables are definedin Table III. We regress the spreads on a constant and report the coefficient on the constant. We weigh eachobservation by one over the total number of comparable nonswitching loans per switching or transfer loan. Wecluster at the switching-firm level and report robust standard errors between parentheses. We also report thedifference between the mean interest rate on the switching or transfer loans and the mean interest rate on thenonswitching loans in each column. We report standard errors between parentheses. ∗, ∗∗, and ∗∗∗ indicatesignificance at the 10%, 5%, and 1% levels, two-tailed.

Transfer

Appendix 7 Table VI

Switching

Period since the branch closure Before1-6 months

after7-12 months

after>12 months

after

Number of switching / first transfer loans 172 41 33 113Number of nonswitching loans 531 161 138 376Number of observations (matched pairs) 655 164 161 410

Interest rate difference with matching -79.11*** -5.57 -25.25 -101.31***(28.07) (40.83) (23.13) (30.90)

Interest rate difference without matching -124.00*** -101.11** -181.79 -75.95(26.39) (38.37) (113.45) (150.96)

We assess the spread between the interest rate on switching or first transfer loans and the interest rate on newnonswitching loans obtained from the switchers’ outside bank (by other firms) when the closest branch of theinside bank closes. We match on the variables indicated in Column III of Table A5 IV. All variables are definedin Table III. We regress the spreads on a constant and report the coefficient on the constant. We weigh eachobservation by one over the total number of comparable nonswitching loans per switching or first transfer loan.We cluster at the switching-firm level and report robust standard errors between parentheses. We also report thedifference between the mean interest rate on the switching or first transfer loans and the mean interest rate on thenonswitching loans in each column. We report standard errors between parentheses. ∗, ∗∗, and ∗∗∗ indicatesignificance at the 10%, 5%, and 1% levels, two-tailed.

First Transfer

Spreads between Interest Rates on Switching or First Transfer Loans and Matched Nonswitching Loans Given by the Outside Bank When the Closest Branch of the Inside Bank Closes - Matching on Branch

Density

SwitchingPeriod since the branch closure

Before1-6 months

after7-12 months

after>12 months

after

Number of switching loans 172 4 32 63Number of nonswitching loans 531 9 103 235Number of observations (matched pairs) 655 9 172 383

Interest rate difference with matching -79.11*** -145.33 -106.11*** -55.56**(28.07) (115.99) (22.44) (24.27)

Interest rate difference without matching -124.00*** -284.50*** -246.00*** -334.46***(26.39) (28.28) (14.37) (35.56)

We assess the spread between the interest rate on switching or later transfer loans and the interest rate on newnonswitching loans obtained from the switchers’ outside bank (by other firms) when the closest branch of theinside bank closes. We match on the variables indicated in Column III of Table A5 IV. All variables are definedin Table III. We regress the spreads on a constant and report the coefficient on the constant. We weigh eachobservation by one over the total number of comparable nonswitching loans per switching or later transfer loan.We cluster at the switching-firm level and report robust standard errors between parentheses. We also report thedifference between the mean interest rate on the switching or later transfer loans and the mean interest rate onthe nonswitching loans in each column. We report standard errors between parentheses. ∗, ∗∗, and ∗∗∗ indicatesignificance at the 10%, 5%, and 1% levels, two-tailed.

Later Transfer

Appendix 7 Table VII

Spreads between Interest Rates on Switching or Later Transfer Loans and Matched Nonswitching Loans Given by the Outside Bank When the Closest Branch of the Inside Bank Closes - Matching on Branch

Density

Appendix 8 Table IV

Spreads between Interest Rates on Switching Loans and Matched Nonswitching Loans Given by Inside or Outside Banks - Matching on Multiple Bank Relationships Dummy

BenchmarkMatching Variables I II III IV

Quarter Yes Yes Yes YesInside bank Yes YesOutside bank YesForeign bank YesFirm YesCredit rating Yes Yes Yes YesMultiple bank relationships Yes Yes Yes YesIndustry Yes Yes Yes YesRegion Yes Yes Yes YesLegal structure Yes Yes Yes YesCollateral Yes Yes Yes YesLoan maturity Yes Yes Yes YesLoan amount Yes Yes Yes YesFloating loan rate Yes Yes Yes Yes

Number of switching loans 5,333 3,592 5,349 1,639Number of nonswitching loans 26,059 16,807 17,076 3,382Number of observations (matched pairs) 41,965 23,205 24,694 7,717

Interest rate difference with matching -129.93*** -93.94*** -61.42*** -91.93***(8.84) (7.57) (5.32) (12.37)

Interest rate difference without matching -146.08*** -101.85*** -56.73*** -64.67**(8.75) (9.66) (9.06) (31.56)

We assess the spread between the interest rate on switching loans and the interest rate on newnonswitching loans obtained (by other firms) from the switchers’ set of inside banks in ColumnI and II and from the switchers’ set of outside bank in Column III. In Column IV we comparethe rate of switching loans with the rate of non-switching loans obtained by the same firm,excluding non-switching loans given by the outside bank. We match on the indicated variables.All variables are defined in Table III. We regress the spreads on a constant and report thecoefficient on the constant. We weigh each observation by one over the total number ofcomparable nonswitching loans per switching loan. We cluster at the switching-firm level andreport robust standard errors between parentheses. We also report the difference between themean interest rate on the switching loans and the mean interest rate on the nonswitching loansin each column. We report standard errors between parentheses. ∗, ∗∗, and ∗∗∗ indicatesignificance at the 10%, 5%, and 1% levels, two-tailed.

Appendix 8 Table VSpreads between Interest Rates on Switching or Transfer Loans and Matched Nonswitching Loans Given

by the Outside Bank When the Closest Branch of the Inside Bank Closes - Matching on Multiple Bank Relationships Dummy

Switching

Period since the branch closure Before1-6 months

after7-12 months

after>12 months

after

Number of switching / transfer loans 191 56 73 202Number of nonswitching loans 708 186 311 858Number of observations (matched pairs) 860 194 506 1,222

Interest rate difference with matching -47.85* 1.07 -60.39* -90.61***(26.24) (34.25) (35.66) (17.69)

Interest rate difference without matching -101.84*** -121.10*** -211.60*** -208.56**(24.80) (39.06) (51.98) (81.25)

We assess the spread between the interest rate on switching or transfer loans and the interest rate on newnonswitching loans obtained from the switchers’ outside bank (by other firms) when the closest branch of theinside bank closes. We match on the variables indicated in Column III of Table A6 IV. All variables are definedin Table III. We regress the spreads on a constant and report the coefficient on the constant. We weigh eachobservation by one over the total number of comparable nonswitching loans per switching or transfer loan. Wecluster at the switching-firm level and report robust standard errors between parentheses. We also report thedifference between the mean interest rate on the switching or transfer loans and the mean interest rate on thenonswitching loans in each column. We report standard errors between parentheses. ∗, ∗∗, and ∗∗∗ indicatesignificance at the 10%, 5%, and 1% levels, two-tailed.

Transfer

Appendix 8 Table VI

Spreads between Interest Rates on Switching or First Transfer Loans and Matched Nonswitching Loans Given by the Outside Bank When the Closest Branch of the Inside Bank Closes - Matching on Multiple

Bank Relationships Dummy

Switching

Period since the branch closure Before1-6 months

after7-12 months

after>12 months

after

Number of switching / first transfer loans 191 50 35 131Number of nonswitching loans 708 176 161 545Number of observations (matched pairs) 860 180 211 661

Interest rate difference with matching -47.85* 6.21 2.40 -93.04***(26.24) (37.13) (27.15) (23.10)

Interest rate difference without matching -101.84*** -109.85*** -197.93** -137.41(24.80) (39.57) (93.84) (115.58)

We assess the spread between the interest rate on switching or first transfer loans and the interest rate on newnonswitching loans obtained from the switchers’ outside bank (by other firms) when the closest branch of theinside bank closes. We match on the variables indicated in Column III of Table A6 IV. All variables are definedin Table III. We regress the spreads on a constant and report the coefficient on the constant. We weigh eachobservation by one over the total number of comparable nonswitching loans per switching or first transfer loan.We cluster at the switching-firm level and report robust standard errors between parentheses. We also report thedifference between the mean interest rate on the switching or first transfer loans and the mean interest rate on thenonswitching loans in each column. We report standard errors between parentheses. ∗, ∗∗, and ∗∗∗ indicatesignificance at the 10%, 5%, and 1% levels, two-tailed.

First Transfer

Spreads between Interest Rates on Switching or Later Transfer Loans and Matched Nonswitching Loans Given by the Outside Bank When the Closest Branch of the Inside Bank Closes - Matching on Multiple

Bank Relationships Dummy

SwitchingPeriod since the branch closure

Before1-6 months

after7-12 months

after>12 months

after

Number of switching loans 191 6 38 71Number of nonswitching loans 708 14 186 321Number of observations (matched pairs) 860 14 295 561

Interest rate difference with matching -47.85* -41.77 -118.23** -86.14***(26.24) (75.40) (52.15) (26.61)

Interest rate difference without matching -101.84*** -265.23** -226.12*** -333.88***(24.73) (66.41) (25.67) (29.89)

We assess the spread between the interest rate on switching or later transfer loans and the interest rate on newnonswitching loans obtained from the switchers’ outside bank (by other firms) when the closest branch of theinside bank closes. We match on the variables indicated in Column III of Table A6 IV. All variables are definedin Table III. We regress the spreads on a constant and report the coefficient on the constant. We weigh eachobservation by one over the total number of comparable nonswitching loans per switching or later transfer loan.We cluster at the switching-firm level and report robust standard errors between parentheses. We also report thedifference between the mean interest rate on the switching or later transfer loans and the mean interest rate onthe nonswitching loans in each column. We report standard errors between parentheses. ∗, ∗∗, and ∗∗∗ indicatesignificance at the 10%, 5%, and 1% levels, two-tailed.

Later Transfer

Appendix 8 Table VII

Appendix 9 Table IV

Spreads between Interest Rates on Switching Loans and Matched Nonswitching Loans Given by Inside or Outside Banks - Matching on Firm Size

BenchmarkMatching Variables I II III IV

Quarter Yes Yes Yes YesInside bank Yes YesOutside bank YesForeign bank YesFirm YesCredit rating Yes Yes Yes YesFirm Size Yes Yes Yes YesIndustry Yes Yes Yes YesRegion Yes Yes Yes YesLegal structure Yes Yes Yes YesCollateral Yes Yes Yes YesLoan maturity Yes Yes Yes YesLoan amount Yes Yes Yes YesFloating loan rate Yes Yes Yes Yes

Number of switching loans 4,500 2,990 4,788 1,639Number of nonswitching loans 15,563 10,067 11,623 3,382Number of observations (matched pairs) 23,851 13,561 14,901 7,717

Interest rate difference with matching -135.91*** -101.96*** -72.67*** -91.93***(9.52) (8.15) (5.33) (12.37)

Interest rate difference without matching -165.32*** -130.01*** -71.80*** -64.67**(8.20) (9.46) (8.51) (31.56)

We assess the spread between the interest rate on switching loans and the interest rate on newnonswitching loans obtained (by other firms) from the switchers’ set of inside banks in ColumnI and II and from the switchers’ set of outside bank in Column III. In Column IV we comparethe rate of switching loans with the rate of non-switching loans obtained by the same firm,excluding non-switching loans given by the outside bank. We match on the indicated variables.All variables are defined in Table III. We regress the spreads on a constant and report thecoefficient on the constant. We weigh each observation by one over the total number ofcomparable nonswitching loans per switching loan. We cluster at the switching-firm level andreport robust standard errors between parentheses. We also report the difference between themean interest rate on the switching loans and the mean interest rate on the nonswitching loansin each column. We report standard errors between parentheses. ∗, ∗∗, and ∗∗∗ indicatesignificance at the 10%, 5%, and 1% levels, two-tailed.

Appendix 9 Table V

Spreads between Interest Rates on Switching or Transfer Loans and Matched Nonswitching Loans Given by the Outside Bank When the Closest Branch of the Inside Bank Closes - Matching on Firm Size

Switching

Period since the branch closure Before1-6 months

after7-12 months

after>12 months

after

Number of switching / transfer loans 156 4 26 65Number of nonswitching loans 425 9 91 177Number of observations (matched pairs) 474 9 133 305

Interest rate difference with matching -69.35*** -42.34 -173.09*** -54.57**(24.30) (79.14) (30.68) (23.60)

Interest rate difference without matching -95.05*** -274.67*** -250.38*** -338.37***(25.53) (30.60) (19.11) (36.64)

We assess the spread between the interest rate on switching or transfer loans and the interest rate on newnonswitching loans obtained from the switchers’ outside bank (by other firms) when the closest branch of theinside bank closes. We match on the variables indicated in Column III of Table A7 IV. All variables are definedin Table III. We regress the spreads on a constant and report the coefficient on the constant. We weigh eachobservation by one over the total number of comparable nonswitching loans per switching or transfer loan. Wecluster at the switching-firm level and report robust standard errors between parentheses. We also report thedifference between the mean interest rate on the switching or transfer loans and the mean interest rate on thenonswitching loans in each column. We report standard errors between parentheses. ∗, ∗∗, and ∗∗∗ indicatesignificance at the 10%, 5%, and 1% levels, two-tailed.

Transfer

Switching

Period since the branch closure Before1-6 months

after7-12 months

after>12 months

after

Number of switching / first transfer loans 156 35 26 105Number of nonswitching loans 425 120 108 288Number of observations (matched pairs) 474 123 141 352

Interest rate difference with matching -69.35*** -0.19 -46.30* -89.99***(24.30) (47.52) (24.50) (20.43)

Interest rate difference without matching -95.05*** -138.95*** -151.37 -215.32***(25.53) (35.74) (134.86) (45.96)

We assess the spread between the interest rate on switching or first transfer loans and the interest rate on newnonswitching loans obtained from the switchers’ outside bank (by other firms) when the closest branch of theinside bank closes. We match on the variables indicated in Column III of Table A7 IV. All variables are definedin Table III. We regress the spreads on a constant and report the coefficient on the constant. We weigh eachobservation by one over the total number of comparable nonswitching loans per switching or first transfer loan.We cluster at the switching-firm level and report robust standard errors between parentheses. We also report thedifference between the mean interest rate on the switching or first transfer loans and the mean interest rate on thenonswitching loans in each column. We report standard errors between parentheses. ∗, ∗∗, and ∗∗∗ indicatesignificance at the 10%, 5%, and 1% levels, two-tailed.

First Transfer

Appendix 9 Table VI

Spreads between Interest Rates on Switching or First Transfer Loans and Matched Nonswitching Loans Given by the Outside Bank When the Closest Branch of the Inside Bank Closes - Matching on Firm Size

SwitchingPeriod since the branch closure

Before1-6 months

after7-12 months

after>12 months

after

Number of switching loans 156 4 26 65Number of nonswitching loans 425 9 91 177Number of observations (matched pairs) 474 9 133 305

Interest rate difference with matching -69.35*** -42.34 -173.09*** -54.57**(24.30) (79.14) (30.68) (23.60)

Interest rate difference without matching -95.05*** -274.67*** -250.38*** -338.37***(25.53) (30.60) (19.11) (36.64)

We assess the spread between the interest rate on switching or later transfer loans and the interest rate on newnonswitching loans obtained from the switchers’ outside bank (by other firms) when the closest branch of theinside bank closes. We match on the variables indicated in Column III of Table A7 IV. All variables are definedin Table III. We regress the spreads on a constant and report the coefficient on the constant. We weigh eachobservation by one over the total number of comparable nonswitching loans per switching or later transfer loan.We cluster at the switching-firm level and report robust standard errors between parentheses. We also report thedifference between the mean interest rate on the switching or later transfer loans and the mean interest rate onthe nonswitching loans in each column. We report standard errors between parentheses. ∗, ∗∗, and ∗∗∗ indicatesignificance at the 10%, 5%, and 1% levels, two-tailed.

Later Transfer

Appendix 9 Table VII

Spreads between Interest Rates on Switching or Later Transfer Loans and Matched Nonswitching Loans Given by the Outside Bank When the Closest Branch of the Inside Bank Closes - Matching on Firm Size

Appendix 10 Table IV

Spreads between Interest Rates on Switching Loans and Matched Nonswitching Loans Given by Inside or Outside Banks - Sample Split: Better than Median Rating

BenchmarkMatching Variables I II III IV

Quarter Yes Yes Yes YesInside bank Yes YesOutside bank YesForeign bank YesFirm YesCredit rating Yes Yes Yes YesFirm Size Yes Yes Yes YesIndustry Yes Yes Yes YesRegion Yes Yes Yes YesLegal structure Yes Yes Yes YesCollateral Yes Yes Yes YesLoan maturity Yes Yes Yes YesLoan amount Yes Yes Yes YesFloating loan rate Yes Yes Yes Yes

Number of switching loans 4,706 3,026 4,853 1,367Number of nonswitching loans 25,529 15,853 17,108 2,944Number of observations (matched pairs) 42,704 22,505 24,846 7,081

Interest rate difference with matching -128.07*** -94.70*** -61.40*** -90.72***(9.55) (7.98) (5.72) (13.41)

Interest rate difference without matching -149.47*** -107.12*** -54.68*** -60.02*(8.68) (9.68) (8.71) (32.64)

We assess the spread between the interest rate on switching loans and the interest rate on newnonswitching loans obtained (by other firms) from the switchers’ set of inside banks in ColumnI and II and from the switchers’ set of outside bank in Column III. In Column IV we comparethe rate of switching loans with the rate of non-switching loans obtained by the same firm,excluding non-switching loans given by the outside bank. We match on the indicated variables.All variables are defined in Table III. We regress the spreads on a constant and report thecoefficient on the constant. We weigh each observation by one over the total number ofcomparable nonswitching loans per switching loan. We cluster at the switching-firm level andreport robust standard errors between parentheses. We also report the difference between themean interest rate on the switching loans and the mean interest rate on the nonswitching loansin each column. We report standard errors between parentheses. ∗, ∗∗, and ∗∗∗ indicatesignificance at the 10%, 5%, and 1% levels, two-tailed.

Appendix 10 Table VSpreads between Interest Rates on Switching or Transfer Loans and Matched Nonswitching Loans Given

by the Outside Bank When the Closest Branch of the Inside Bank Closes - Sample Split: Better than Median Rating

Switching

Period since the branch closure Before1-6 months

after7-12 months

after>12 months

after

Number of switching / transfer loans 135 54 63 201Number of nonswitching loans 578 224 258 794Number of observations (matched pairs) 719 232 438 1,123

Interest rate difference with matching -27.58 22.61 -56.77 -95.08***(21.22) (31.20) (36.68) (17.00)

Interest rate difference without matching -52.72* -108.22*** -204.06*** -221.67***(28.68) (30.17) (28.12) (20.46)

We assess the spread between the interest rate on switching or transfer loans and the interest rate on newnonswitching loans obtained from the switchers’ outside bank (by other firms) when the closest branch of theinside bank closes. We match on the variables indicated in Column III of Table A8 IV. All variables are definedin Table III. We regress the spreads on a constant and report the coefficient on the constant. We weigh eachobservation by one over the total number of comparable nonswitching loans per switching or transfer loan. Wecluster at the switching-firm level and report robust standard errors between parentheses. We also report thedifference between the mean interest rate on the switching or transfer loans and the mean interest rate on thenonswitching loans in each column. We report standard errors between parentheses. ∗, ∗∗, and ∗∗∗ indicatesignificance at the 10%, 5%, and 1% levels, two-tailed.

Transfer

Spreads between Interest Rates on Switching or First Transfer Loans and Matched Nonswitching Loans Given by the Outside Bank When the Closest Branch of the Inside Bank Closes - Sample Split: Better

than Median Rating

Switching

Period since the branch closure Before1-6 months

after7-12 months

after>12 months

after

Number of switching / first transfer loans 135 48 33 125Number of nonswitching loans 578 212 135 475Number of observations (matched pairs) 719 216 185 544

Interest rate difference with matching -27.58 35.68 3.94 -105.48***(21.22) (32.90) (18.60) (22.99)

Interest rate difference without matching -52.72* -100.70*** -231.45*** -195.38***(28.68) (32.56) (44.22) (21.07)

We assess the spread between the interest rate on switching or first transfer loans and the interest rate on newnonswitching loans obtained from the switchers’ outside bank (by other firms) when the closest branch of theinside bank closes. We match on the variables indicated in Column III of Table A8 IV. All variables are definedin Table III. We regress the spreads on a constant and report the coefficient on the constant. We weigh eachobservation by one over the total number of comparable nonswitching loans per switching or first transfer loan.We cluster at the switching-firm level and report robust standard errors between parentheses. We also report thedifference between the mean interest rate on the switching or first transfer loans and the mean interest rate on thenonswitching loans in each column. We report standard errors between parentheses. ∗, ∗∗, and ∗∗∗ indicatesignificance at the 10%, 5%, and 1% levels, two-tailed.

First Transfer

Appendix 10 Table VI

SwitchingPeriod since the branch closure

Before1-6 months

after7-12 months

after>12 months

after

Number of switching loans 135 6 30 76Number of nonswitching loans 578 16 159 327Number of observations (matched pairs) 719 16 253 579

Interest rate difference with matching -27.58 -81.96 -123.54* -77.98***(21.22) (74.82) (57.64) (23.34)

Interest rate difference without matching -52.72* -195.30** -169.12*** -262.93***(28.68) (59.10) (18.71) (29.21)

We assess the spread between the interest rate on switching or later transfer loans and the interest rate on newnonswitching loans obtained from the switchers’ outside bank (by other firms) when the closest branch of theinside bank closes. We match on the variables indicated in Column III of Table A8 IV. All variables are definedin Table III. We regress the spreads on a constant and report the coefficient on the constant. We weigh eachobservation by one over the total number of comparable nonswitching loans per switching or later transfer loan.We cluster at the switching-firm level and report robust standard errors between parentheses. We also report thedifference between the mean interest rate on the switching or later transfer loans and the mean interest rate onthe nonswitching loans in each column. We report standard errors between parentheses. ∗, ∗∗, and ∗∗∗ indicatesignificance at the 10%, 5%, and 1% levels, two-tailed.

Later Transfer

Appendix 10 Table VII

Spreads between Interest Rates on Switching or Later Transfer Loans and Matched Nonswitching Loans Given by the Outside Bank When the Closest Branch of the Inside Bank Closes - Sample Split: Better

than Median Rating

Appendix 11 Table IV

Spreads between Interest Rates on Switching Loans and Matched Nonswitching Loans Given by Inside or Outside Banks - Sample Split: Worse than Median Rating

BenchmarkMatching Variables I II III IV

Quarter Yes Yes Yes YesInside bank Yes YesOutside bank YesForeign bank YesFirm YesCredit rating Yes Yes Yes YesFirm Size Yes Yes Yes YesIndustry Yes Yes Yes YesRegion Yes Yes Yes YesLegal structure Yes Yes Yes YesCollateral Yes Yes Yes YesLoan maturity Yes Yes Yes YesLoan amount Yes Yes Yes YesFloating loan rate Yes Yes Yes Yes

Number of switching loans 1,559 1,205 2,078 271Number of nonswitching loans 6,031 4,678 6,784 431Number of observations (matched pairs) 7,425 5,676 8,428 629

Interest rate difference with matching -105.18*** -74.53*** -51.81*** -97.64***(12.28) (14.32) (7.44) (31.82)

Interest rate difference without matching -147.36*** -110.24*** -49.76*** -92.53**(14.67) (16.63) (14.81) (40.49)

We assess the spread between the interest rate on switching loans and the interest rate on newnonswitching loans obtained (by other firms) from the switchers’ set of inside banks in ColumnI and II and from the switchers’ set of outside bank in Column III. In Column IV we comparethe rate of switching loans with the rate of non-switching loans obtained by the same firm,excluding non-switching loans given by the outside bank. We match on the indicated variables.All variables are defined in Table III. We regress the spreads on a constant and report thecoefficient on the constant. We weigh each observation by one over the total number ofcomparable nonswitching loans per switching loan. We cluster at the switching-firm level andreport robust standard errors between parentheses. We also report the difference between themean interest rate on the switching loans and the mean interest rate on the nonswitching loansin each column. We report standard errors between parentheses. ∗, ∗∗, and ∗∗∗ indicatesignificance at the 10%, 5%, and 1% levels, two-tailed.

Appendix 11 Table VSpreads between Interest Rates on Switching or Transfer Loans and Matched Nonswitching Loans Given

by the Outside Bank When the Closest Branch of the Inside Bank Closes - Sample Split: Worse than Median Rating

Switching

Period since the branch closure Before1-6 months

after7-12 months

after>12 months

after

Number of switching / transfer loans 95 14 15 35Number of nonswitching loans 300 71 80 192Number of observations (matched pairs) 331 73 97 248

Interest rate difference with matching -112.86** -11.35 -59.54 -89.18(46.48) (78.57) (90.36) (59.00)

Interest rate difference without matching -181.45*** -104.17 -92.58 117.42(31.54) (64.15) (123.81) (248.10)

We assess the spread between the interest rate on switching or transfer loans and the interest rate on newnonswitching loans obtained from the switchers’ outside bank (by other firms) when the closest branch of theinside bank closes. We match on the variables indicated in Column III of Table IV. All variables are defined inTable III. We regress the spreads on a constant and report the coefficient on the constant. We weigh eachobservation by one over the total number of comparable nonswitching loans per switching or transfer loan. Wecluster at the switching-firm level and report robust standard errors between parentheses. We also report thedifference between the mean interest rate on the switching or transfer loans and the mean interest rate on thenonswitching loans in each column. We report standard errors between parentheses. ∗, ∗∗, and ∗∗∗ indicatesignificance at the 10%, 5%, and 1% levels, two-tailed.

Transfer

Spreads between Interest Rates on Switching or First Transfer Loans and Matched Nonswitching Loans Given by the Outside Bank When the Closest Branch of the Inside Bank Closes - Sample Split: Worse

than Median Rating

Switching

Period since the branch closure Before1-6 months

after7-12 months

after>12 months

after

Number of switching / first transfer loans 95 14 6 30Number of nonswitching loans 300 71 50 184Number of observations (matched pairs) 331 73 50 239

Interest rate difference with matching -112.86** -11.35 -16.61 -61.07(46.48) (78.57) (139.88) (62.01)

Interest rate difference without matching -181.45*** -104.17 24.03 132.33(31.54) (64.15) (56.09) (254.27)

We assess the spread between the interest rate on switching or first transfer loans and the interest rate on newnonswitching loans obtained from the switchers’ outside bank (by other firms) when the closest branch of theinside bank closes. We match on the variables indicated in Column III of Table IV. All variables are defined inTable III. We regress the spreads on a constant and report the coefficient on the constant. We weigh eachobservation by one over the total number of comparable nonswitching loans per switching or first transfer loan.We cluster at the switching-firm level and report robust standard errors between parentheses. We also report thedifference between the mean interest rate on the switching or first transfer loans and the mean interest rate on thenonswitching loans in each column. We report standard errors between parentheses. ∗, ∗∗, and ∗∗∗ indicatesignificance at the 10%, 5%, and 1% levels, two-tailed.

First Transfer

Appendix 11 Table VI

Appendix 11 Table VIISpreads between Interest Rates on Switching or Later Transfer Loans and Matched Nonswitching Loans

Given by the Outside Bank When the Closest Branch of the Inside Bank Closes - Sample Split: Worse than Median Rating

SwitchingPeriod since the branch closure

Before1-6 months

after7-12 months

after>12 months

after

Number of switching loans 95 n.a. 9 5Number of nonswitching loans 300 n.a. 30 30Number of observations (matched pairs) 331 n.a. 47 4

Interest rate difference with matching -112.86** n.a. -88.16 -257.85(46.48) n.a. (124.47) (176.59)

Interest rate difference without matching -181.45*** n.a. -286.92 -256.65**(31.54) n.a. (139.55) (89.71)

We assess the spread between the interest rate on switching or later transfer loans and the interest rate on newnonswitching loans obtained from the switchers’ outside bank (by other firms) when the closest branch of theinside bank closes. We match on the variables indicated in Column III of Table IV. All variables are defined inTable III. We regress the spreads on a constant and report the coefficient on the constant. We weigh eachobservation by one over the total number of comparable nonswitching loans per switching or later transfer loan.We cluster at the switching-firm level and report robust standard errors between parentheses. We also report thedifference between the mean interest rate on the switching or later transfer loans and the mean interest rate onthe nonswitching loans in each column. We report standard errors between parentheses. ∗, ∗∗, and ∗∗∗ indicatesignificance at the 10%, 5%, and 1% levels, two-tailed.

Later Transfer

Appendix 12 Table V

Spreads between Interest Rates on Switching or Transfer Loans and Matched Nonswitching Loans Given by the Outside Bank When the Closest Branch of the Inside Bank Closes - Main Lender Closes

Switching

Period since the branch closure Before1-6 months

after7-12 months

after>12 months

after

Number of switching / transfer loans 47 14 23 61Number of nonswitching loans 281 71 68 306Number of observations (matched pairs) 311 76 97 426

Interest rate difference with matching -97.70** -7.32 -110.00 -31.82(47.28) (84.06) (81.57) (34.07)

Interest rate difference without matching -94.27* -200.93*** -241.54** 46.74(48.40) (55.39) (103.76) (212.77)

We assess the spread between the interest rate on switching or transfer loans and the interest rate on newnonswitching loans obtained from the switchers’ outside bank (by other firms) when the closest branch of theinside bank closes. We match on the variables indicated in Column III of Table IV. All variables are defined inTable III. We regress the spreads on a constant and report the coefficient on the constant. We weigh eachobservation by one over the total number of comparable nonswitching loans per switching or transfer loan. Wecluster at the switching-firm level and report robust standard errors between parentheses. We also report thedifference between the mean interest rate on the switching or transfer loans and the mean interest rate on thenonswitching loans in each column. We report standard errors between parentheses. ∗, ∗∗, and ∗∗∗ indicatesignificance at the 10%, 5%, and 1% levels, two-tailed.

Transfer

Switching

Period since the branch closure Before1-6 months

after7-12 months

after>12 months

after

Number of switching / first transfer loans 47 11 10 44Number of nonswitching loans 281 67 56 237Number of observations (matched pairs) 311 68 56 283

Interest rate difference with matching -97.70** 20.03 -54.94 -22.66(47.28) (97.61) (55.75) (43.37)

Interest rate difference without matching -94.27* -190.14** -317.62*** 156.82(48.40) (60.30) (85.22) (221.39)

We assess the spread between the interest rate on switching or first transfer loans and the interest rate on newnonswitching loans obtained from the switchers’ outside bank (by other firms) when the closest branch of theinside bank closes. We match on the variables indicated in Column III of Table IV. All variables are defined inTable III. We regress the spreads on a constant and report the coefficient on the constant. We weigh eachobservation by one over the total number of comparable nonswitching loans per switching or first transfer loan.We cluster at the switching-firm level and report robust standard errors between parentheses. We also report thedifference between the mean interest rate on the switching or first transfer loans and the mean interest rate on thenonswitching loans in each column. We report standard errors between parentheses. ∗, ∗∗, and ∗∗∗ indicatesignificance at the 10%, 5%, and 1% levels, two-tailed.

First Transfer

Appendix 12 Table VI

Spreads between Interest Rates on Switching or First Transfer Loans and Matched Nonswitching Loans Given by the Outside Bank When the Closest Branch of the Inside Bank Closes - Main Lender Closes

SwitchingPeriod since the branch closure

Before1-6 months

after7-12 months

after>12 months

after

Number of switching loans 47 3 13 17Number of nonswitching loans 281 8 24 70Number of observations (matched pairs) 311 8 41 143

Interest rate difference with matching -97.70** -107.59 -152.36 -55.52**(47.28) (127.52) (125.48) (22.14)

Interest rate difference without matching -94.27* -256.21 -60.66 -328.70***(48.40) (123.27) (193.95) (51.34)

We assess the spread between the interest rate on switching or later transfer loans and the interest rate on newnonswitching loans obtained from the switchers’ outside bank (by other firms) when the closest branch of theinside bank closes. We match on the variables indicated in Column III of Table IV. All variables are defined inTable III. We regress the spreads on a constant and report the coefficient on the constant. We weigh eachobservation by one over the total number of comparable nonswitching loans per switching or later transfer loan.We cluster at the switching-firm level and report robust standard errors between parentheses. We also report thedifference between the mean interest rate on the switching or later transfer loans and the mean interest rate onthe nonswitching loans in each column. We report standard errors between parentheses. ∗, ∗∗, and ∗∗∗ indicatesignificance at the 10%, 5%, and 1% levels, two-tailed.

Later Transfer

Appendix 12 Table VII

Spreads between Interest Rates on Switching or Later Transfer Loans and Matched Nonswitching Loans Given by the Outside Bank When the Closest Branch of the Inside Bank Closes - Main Lender Closes

Appendix 13 Table VSpreads between Interest Rates on Switching or Transfer Loans and Matched Nonswitching Loans Given by the Outside Bank When the Closest Branch of the Inside Bank Closes - Month Before Transfer Within

Post-Transfer Period

Switching

Period since the branch closure Before1-6 months

after7-12 months

after>12 months

after

Number of switching / transfer loans 251 67 94 206Number of nonswitching loans 1,036 305 481 782Number of observations (matched pairs) 1,215 323 713 1,120

Interest rate difference with matching -65.06*** 17.47 -90.19** -86.80***(22.10) (29.10) (34.93) (15.85)

Interest rate difference without matching -120.82*** -150.85*** -39.28 -284.54***(25.61) (33.37) (147.66) (20.31)

We assess the spread between the interest rate on switching or transfer loans and the interest rate on newnonswitching loans obtained from the switchers’ outside bank (by other firms) when the closest branch of theinside bank closes. We match on the variables indicated in Column III of Table IV. All variables are defined inTable III. We regress the spreads on a constant and report the coefficient on the constant. We weigh eachobservation by one over the total number of comparable nonswitching loans per switching or transfer loan. Wecluster at the switching-firm level and report robust standard errors between parentheses. We also report thedifference between the mean interest rate on the switching or transfer loans and the mean interest rate on thenonswitching loans in each column. We report standard errors between parentheses. ∗, ∗∗, and ∗∗∗ indicatesignificance at the 10%, 5%, and 1% levels, two-tailed.

Transfer

Spreads between Interest Rates on Switching or First Transfer Loans and Matched Nonswitching Loans Given by the Outside Bank When the Closest Branch of the Inside Bank Closes - Month Before Transfer

Within Post-Transfer Period

Switching

Period since the branch closure Before1-6 months

after7-12 months

after>12 months

after

Number of switching / first transfer loans 251 60 57 129Number of nonswitching loans 1,036 275 353 459Number of observations (matched pairs) 1,215 281 449 537

Interest rate difference with matching -65.06*** 36.56 -54.79 -98.19***(22.10) (29.83) (42.13) (21.00)

Interest rate difference without matching -120.82*** -133.94*** 23.17 -253.42***(25.61) (34.85) (183.72) (18.84)

We assess the spread between the interest rate on switching or first transfer loans and the interest rate on newnonswitching loans obtained from the switchers’ outside bank (by other firms) when the closest branch of theinside bank closes. We match on the variables indicated in Column III of Table IV. All variables are defined inTable III. We regress the spreads on a constant and report the coefficient on the constant. We weigh eachobservation by one over the total number of comparable nonswitching loans per switching or first transfer loan.We cluster at the switching-firm level and report robust standard errors between parentheses. We also report thedifference between the mean interest rate on the switching or first transfer loans and the mean interest rate on thenonswitching loans in each column. We report standard errors between parentheses. ∗, ∗∗, and ∗∗∗ indicatesignificance at the 10%, 5%, and 1% levels, two-tailed.

First Transfer

Appendix 13 Table VI

Appendix 13 Table VIISpreads between Interest Rates on Switching or Later Transfer Loans and Matched Nonswitching Loans Given by the Outside Bank When the Closest Branch of the Inside Bank Closes - Month Before Transfer

Within Post-Transfer Period

SwitchingPeriod since the branch closure

Before1-6 months

after7-12 months

after>12 months

after

Number of switching loans 251 16 37 77Number of nonswitching loans 1,036 57 153 331Number of observations (matched pairs) 1,215 58 264 583

Interest rate difference with matching -65.06*** -26.50 -144.73** -67.72***(22.10) (81.54) (53.75) (22.67)

Interest rate difference without matching -120.80*** -209.89** -213.59*** -330.80***(25.37) (81.03) (32.03) (29.80)

We assess the spread between the interest rate on switching or later transfer loans and the interest rate on newnonswitching loans obtained from the switchers’ outside bank (by other firms) when the closest branch of theinside bank closes. We match on the variables indicated in Column III of Table IV. All variables are defined inTable III. We regress the spreads on a constant and report the coefficient on the constant. We weigh eachobservation by one over the total number of comparable nonswitching loans per switching or later transfer loan.We cluster at the switching-firm level and report robust standard errors between parentheses. We also report thedifference between the mean interest rate on the switching or later transfer loans and the mean interest rate onthe nonswitching loans in each column. We report standard errors between parentheses. ∗, ∗∗, and ∗∗∗ indicatesignificance at the 10%, 5%, and 1% levels, two-tailed.

Later Transfer