Accounting-Based Thresholds and Growth Decisions in the Banking Industry

Review of Accounting Studies, forthcoming

55 Pages Posted: 3 Feb 2017 Last revised: 16 Sep 2020

See all articles by Hailey Ballew

Hailey Ballew

Jesse H. Jones Graduate School of Business - Rice University; Ohio State University (OSU) - Department of Accounting & Management Information Systems

Michael Iselin

University of Minnesota - Twin Cities - Department of Accounting

Allison Nicoletti

University of Pennsylvania - Accounting Department

Date Written: September 7, 2020

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.

Keywords: Banks, Regulation, Accounting-Based Thresholds, Acquisitions, Deposits

JEL Classification: G21, G28, G34, M40

Suggested Citation

Ballew, Hailey and Iselin, Michael and Nicoletti, Allison, Accounting-Based Thresholds and Growth Decisions in the Banking Industry (September 7, 2020). Review of Accounting Studies, forthcoming, Available at SSRN: https://ssrn.com/abstract=2910440 or http://dx.doi.org/10.2139/ssrn.2910440

Hailey Ballew

Jesse H. Jones Graduate School of Business - Rice University ( email )

6100 South Main Street
P.O. Box 1892
Houston, TX 77005-1892
United States
7133486217 (Phone)

HOME PAGE: http://https://business.rice.edu/person/hailey-ballew

Ohio State University (OSU) - Department of Accounting & Management Information Systems ( email )

2100 Neil Avenue
Columbus, OH 43210
United States

Michael Iselin (Contact Author)

University of Minnesota - Twin Cities - Department of Accounting ( email )

271 19th Avenue South
Room 645 Mgt. Econ. Building
Minneapolis, MN 55455
United States

Allison Nicoletti

University of Pennsylvania - Accounting Department ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States

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