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

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

Journal of Corporate Finance, 2020, vol. 62, issue C

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.

Keywords: Indirect treatment effects; Direct treatment effects; Regulatory size thresholds; Mergers; Acquisitions; Real effects; Dodd-frank act; Regulatory costs (search for similar items in EconPapers)
JEL-codes: G18 G21 G28 (search for similar items in EconPapers)
Date: 2020
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DOI: 10.1016/j.jcorpfin.2019.101519

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