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Accounting-based thresholds and growth decisions in the banking industry

Author

Listed:
  • Hailey Ballew

    (Rice University)

  • Michael Iselin

    (University of Minnesota)

  • Allison Nicoletti

    (University of Pennsylvania)

Abstract

This paper examines the effects of accounting-based thresholds in regulation on growth decisions in the banking industry. To investigate this relation we study changes in growth around the $10 billion asset threshold specified in the Dodd-Frank Act. We first document that, in the years after the new threshold-based regulations are announced, banks slow their asset growth as they approach the threshold and then accelerate their asset growth as they cross the threshold. Next, we document the primary mechanism banks use to achieve each of these changes in growth: reduced deposit growth rates to slow growth and increased acquisition activity to accelerate growth. Finally, we document that, while banks attempt to remain below the threshold, they reduce the growth of their investment portfolio and report a lower return on assets. Also, when banks accelerate growth through acquisition activity, those acquisitions involve larger and riskier target banks. These findings suggest that regulations with accounting-based thresholds can affect growth decisions and profitability in the banking industry.

Suggested Citation

  • 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.
    • Handle: RePEc:spr:reaccs:v:27:y:2022:i:1:d:10.1007_s11142-021-09589-6
    DOI: 10.1007/s11142-021-09589-6
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    More about this item

    Keywords

    Banks; Regulation; Accounting-based thresholds; Acquisitions; Deposits;
    All these keywords.

    JEL classification:

    • 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
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • M40 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - General

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