Regulatory Size Thresholds and Merger and Acquisition Behavior

44 Pages Posted: 28 May 2017 Last revised: 6 Oct 2017

See all articles by Shradha Bindal

Shradha Bindal

Texas A&M University (TAMU), Mays Business School, Department of Finance

Christa H. S. Bouwman

Texas A&M University; Wharton Financial Institutions Center

Shuting (Sophia) Hu

Baylor University - Department of Finance, Insurance & Real Estate

Shane A. Johnson

Texas A&M University - Department of Finance

Date Written: October 2, 2017

Abstract

Size threshold-based regulatory requirements are pervasive, but little is known about how they affect the merger and acquisition (M&A) behavior of firms around the thresholds. M&As cause discrete increases in size, so we hypothesize changes in firms’ M&A behavior near regulatory size thresholds. Our identification strategy relies on size thresholds imposed by the Dodd-Frank Act. 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 M&A behavior. Our results also illustrate the limitations of a standard difference-in-differences approach to studying events that involve size thresholds.

Keywords: Dodd-Frank Act, regulatory costs, bank size, acquisitions

JEL Classification: G18, G21, G28

Suggested Citation

Bindal, Shradha and Bouwman, Christa H. S. and Hu, Shuting and Johnson, Shane A., Regulatory Size Thresholds and Merger and Acquisition Behavior (October 2, 2017). Available at SSRN: https://ssrn.com/abstract=2974303 or http://dx.doi.org/10.2139/ssrn.2974303

Shradha Bindal

Texas A&M University (TAMU), Mays Business School, Department of Finance ( email )

430 Wehner
College Station, TX 77843-4218
United States

Christa H. S. Bouwman (Contact Author)

Texas A&M University ( email )

360H Wehner
College Station, TX 77843-4218
United States
979-845-3514 (Phone)
979-845-3514 (Fax)

HOME PAGE: http://people.tamu.edu/~cbouwman/

Wharton Financial Institutions Center

2306 Steinberg Hall-Dietrich Hall
3620 Locust Walk
Philadelphia, PA 19104
United States

Shuting Hu

Baylor University - Department of Finance, Insurance & Real Estate ( email )

P.O. Box 98004
Waco, TX 76798-8004
United States

Shane A. Johnson

Texas A&M University - Department of Finance ( email )

Mays School of Business
College Station, TX 77843-4218
United States
979-862-3318 (Phone)

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