Are the Largest Banks Valued More Highly?

Fisher College of Business Working Paper No. 2018-03-012

Charles A. Dice Center Working Paper No. 2018-12

67 Pages Posted: 13 Jul 2018

See all articles by Bernadette Minton

Bernadette Minton

Ohio State University (OSU) - Fisher College of Business

René Stulz

Ohio State University (OSU) - Fisher College of Business

Alvaro G. Taboada

Mississippi State University

Date Written: July 12, 2018

Abstract

Some argue too-big-to-fail (TBTF) status increases the value of the largest banks. In contrast, we find that the value of the largest banks is negatively related to asset size in normal times, but not during the financial crisis when TBTF status was most valuable. Further, shareholders lose when large banks cross a TBTF threshold through acquisitions. The negative relation between bank value and bank size for the largest banks cannot be explained by differences in ROA, ROE, equity volatility, tail risk, distress risk, or equity discount rates, but it can be partly explained by the market’s discounting of trading activities.

Keywords: Size and Bank Value, Bank Performance, Too-Big-To-Fail (TBTF), TBTF Subsidy, Trading Assets

JEL Classification: G2, G21, G28, G3

Suggested Citation

Minton, Bernadette and Stulz, René and Taboada, Alvaro G., Are the Largest Banks Valued More Highly? (July 12, 2018). Fisher College of Business Working Paper No. 2018-03-012. Available at SSRN: https://ssrn.com/abstract=3213623 or http://dx.doi.org/10.2139/ssrn.3213623

Bernadette Minton

Ohio State University (OSU) - Fisher College of Business ( email )

2100 Neil Avenue
Columbus, OH 43210-1144
United States

René Stulz (Contact Author)

Ohio State University (OSU) - Fisher College of Business ( email )

2100 Neil Avenue
Columbus, OH 43210-1144
United States

Alvaro G. Taboada

Mississippi State University ( email )

310-H McCool Hall
PO Box 9580
Mississippi State, MS 39762
United States
662-325-6716 (Phone)
662-325-1977 (Fax)

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