Geographic deregulation and banks’ cost of equity capital

Allen N. Berger, Sadok El Ghoul, Omrane Guedhami and Raluca Roman ()

Journal of International Money and Finance, 2022, vol. 120, issue C

Abstract: We examine the effects of geographic deregulation on banks’ cost of equity (COE) using changes in interstate bank branching laws over the post–Riegle-Neal period (1994:Q4–2016:Q4). We find strong evidence that deregulation increases banks’ COE. This is driven primarily by active acquirers, rather than those subject to increased competition from these acquirers. We identify higher risk-taking as an important channel for these findings. The results support our new acquisitions–fragility view, rather than the traditional competition–fragility view. Results are robust to instrumental variables, accounting for secular trends, and alternative explanations.

Keywords: Bank deregulation; Cost of equity capital; Risk; Acquisitions; M&As; Market discipline (search for similar items in EconPapers)
JEL-codes: G21 G28 G34 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jimfin:v:120:y:2022:i:c:s0261560621001492

DOI: 10.1016/j.jimonfin.2021.102498

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