Who Loses Most When Big Banks Suddenly Fail? – Evidence from Silicon Valley Bank Collapse

22 Pages Posted: 10 May 2023 Last revised: 2 Jan 2024

See all articles by Xia (Summer) Liu

Xia (Summer) Liu

University of Richmond

William L. Megginson

University of Oklahoma

Nhu Tran

University of Richmond

Siqi Wei

David Nazarian College of Business and Economics, California State University, Northridge

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Date Written: October 31, 2023

Abstract

We analyze the market reaction of Silicon Valley Bank (SVB)’s public clients to the collapse of SVB. We identify 137 SVB depositors which mention SVB in their 8-K filings from March 10 to March 13, 2023, and 251 SVB borrowers which mention SVB as their lender in any of their 10-K filings from 2021 to 2022. For the depositors, we document an average of -5.12% single-day abnormal return (AR) on the event date (March 10, 2023), and a -12.38% cumulative abnormal return (CAR) over a 30-day post-event window. More surprisingly, the borrowers also experience a similar AR (-4.16%) on the event day and an even worse CAR over the 30-day window (-13.47%). The majority of SVB public clients are from the Healthcare and Pharmaceutical industry, with their headquarters primarily located in California or Massachusetts. In the regression framework, we find that SVB clients are more likely to have worse CARs if they are smaller, with higher cash holdings, or with lower market-to-book ratios. These results indicate that the borrowers appear to suffer more than the depositors from the bank failure. Our findings highlight the importance of commercial banking and financial system stability to small and medium-sized companies, which are the backbone of the high-tech economy.

Keywords: Silicon Valley Bank, Commercial Banking, Event Study

JEL Classification: G21, G30

Suggested Citation

Liu, Xia and Megginson, William L. and Tran, Nhu and Wei, Siqi, Who Loses Most When Big Banks Suddenly Fail? – Evidence from Silicon Valley Bank Collapse (October 31, 2023). Finance Research Letters, Vol. 59, No. 104806, Available at SSRN: https://ssrn.com/abstract=4443827

Xia Liu (Contact Author)

University of Richmond ( email )

102 UR Drive
Richmond, VA 23173
United States

William L. Megginson

University of Oklahoma ( email )

307 W Brooks, 205A Adams Hall
Norman, OK 73019
United States
(405) 325-2058 (Phone)
(405) 325-1957 (Fax)

HOME PAGE: http://faculty-staff.ou.edu/M/William.L.Megginson-

Nhu Tran

University of Richmond ( email )

28 Westhampton Way
Richmond, VA 23173
United States

Siqi Wei

David Nazarian College of Business and Economics, California State University, Northridge ( email )

18111 Nordhoff Street
Northridge, CA 91330
United States

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