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Bank regulatory size thresholds, merger and acquisition behavior, and small business lending

Author

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  • Bindal, Shradha
  • Bouwman, Christa H.S.
  • Hu, Shuting (Sophia)
  • Johnson, Shane A.

Abstract

Size threshold-based regulatory requirements are pervasive in banking, but little is known about how they affect the merger and acquisition (M&A) behavior of banks around the thresholds. M&As cause discrete increases in size, so we hypothesize changes in banks' M&A behavior near regulatory size thresholds and associated real effects (changes in small business lending by the acquiring banks). We develop a novel research design that estimates indirect treatment effects for banks just below the thresholds. We find strong evidence of indirect treatment effects on bank M&A behavior and the small business lending of the merged banks. Our results illustrate the importance of indirect treatment effects in difference-in-differences studies involving size thresholds.

Suggested Citation

  • Bindal, Shradha & Bouwman, Christa H.S. & Hu, Shuting (Sophia) & Johnson, Shane A., 2020. "Bank regulatory size thresholds, merger and acquisition behavior, and small business lending," Journal of Corporate Finance, Elsevier, vol. 62(C).
    • Handle: RePEc:eee:corfin:v:62:y:2020:i:c:s092911991830840x
    DOI: 10.1016/j.jcorpfin.2019.101519
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    Cited by:

    1. Chronopoulos, Dimitris K. & Wilson, John O.S. & Yilmaz, Muhammed H., 2023. "Regulatory oversight and bank risk," Journal of Financial Stability, Elsevier, vol. 64(C).
    2. Çağlar Hamarat & Daniel Broby, 2022. "Regulatory constraint and small business lending: do innovative peer-to-peer lenders have an advantage?," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 8(1), pages 1-25, December.
    3. Berger, Allen N. & Molyneux, Phil & Wilson, John O.S., 2020. "Banks and the real economy: An assessment of the research," Journal of Corporate Finance, Elsevier, vol. 62(C).
    4. Gilani, Usman & Keasey, Kevin & Vallascas, Francesco, 2021. "Board financial expertise and the capital decisions of US banks," Journal of Corporate Finance, Elsevier, vol. 71(C).
    5. Nguyen, Thach Vu Hong & Ahmed, Shamim & Chevapatrakul, Thanaset & Onali, Enrico, 2020. "Do stress tests affect bank liquidity creation?," Journal of Corporate Finance, Elsevier, vol. 64(C).
    6. Hailey Ballew & Michael Iselin & Allison Nicoletti, 2022. "Accounting-based thresholds and growth decisions in the banking industry," Review of Accounting Studies, Springer, vol. 27(1), pages 232-274, March.

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    More about this item

    Keywords

    Indirect treatment effects; Direct treatment effects; Regulatory size thresholds; Mergers; Acquisitions; Real effects; Dodd-frank act; Regulatory costs;
    All these keywords.

    JEL classification:

    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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