Consumer protection and firm valuation: A study of overdraft protection and US banks

Michelle Gabor, Arjan Premti and Mohammad Jafarinejad

Finance Research Letters, 2024, vol. 67, issue PB

Abstract: This study investigates the impact of regulatory and voluntary overdraft protection (ODP) reductions on bank valuations. Using event study methodology and cross-sectional regression analysis, we find that banks have significantly positive cumulative abnormal returns (CAR) as a result of regulatory ODP reductions. The CAR is higher for banks with higher reliance on ODP income. The positive valuation effect diminishes for larger and well-capitalized banks. For voluntary ODP reductions, the valuation effect is negative, and more pronounced among highly profitable banks. The valuation decrease is attenuated for banks with higher capital ratios, and higher betas. These findings highlight the nuanced financial implications of consumer protection activities on bank valuation.

Keywords: Banking; Consumer protection; Overdraft; Regulation; Financial inclusion; Valuation (search for similar items in EconPapers)
JEL-codes: G14 G21 G28 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:67:y:2024:i:pb:s1544612324009796

DOI: 10.1016/j.frl.2024.105949

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