U.S. Bank M&As in the Post-Dodd-Frank Act Era: Do They Create Value?

Abstract

The Dodd-Frank Act has produced a new wave of bank M&As. This consolidation trend is mainly driven by mergers of small banks, since small banks feel the need to merge in order to absorb the compliance costs of the new regulation. We document that the $10 billion asset-size threshold has become the ceiling of the optimal scale for bank combinations, given that banks below this $10 billion mark avoid several regulatory hurdles imposed by the Dodd-Frank Act. Results for these "less than $10 billion mergers" suggest significant value creation for both firms' shareholders: Bidders experience large anticipated wealth gains during the passage of the legislation since the market had ex-ante identified these bids. Consequently, at the deal announcement date, bidders experience insignificant returns, targets experience large abnormal returns and the combined abnormal returns are statistically positive. Finally, bidders experience positive abnormal returns at the deal completion date. On the contrary, results for larger bank mergers indicate a redistribution of wealth from the bidder to the target firm.

What Twenty Years of Regulations Have to Say About M&As of U.S. Banks?

“…Prior studies have outlined the important effect of regulatory changes on merger wealth gains (Carow and Heron, 1998;Becher, 2000Becher, , 2009Filson and Olfatti. 2014;Leledakis and Pyrgiotakis, 2016). Therefore, we test whether these legislative changes could explain the difference in market reaction between public and nonpublic bids.…”

“…The 2008 financial crisis led to a further dramatic decrease in the level of banking consolidation. However, in the most recent years, U.S. bank M&A activity exhibits an increasing trend, following the passage of the Dodd-Frank Act (Leledakis and Pyrgiotakis, 2016).…”

Using textual analysis to identify merger participants: Evidence from the U.S. banking industry

“…Third, we collect bank M&As data from the Thomson ONE database for deals announced between April, 1997 andMarch, 2017. 2 Similar to Leledakis and Pyrgiotakis (2020), we use the following criteria to filter our bank M&As sample: (1) both bidders and targets are commercial banks, savings institutions, or bank holding companies, (2) the bidder is public,…”

EU Regulation and open market share repurchases: new evidence

“…Therefore, to ensure the consistency of our results, we also use the propensity score matching (PSM) approach. This approach is commonly-used in recent studies that examine the impact of regulatory changes on corporate events (Dahya et al, 2019;Leledakis and Pyrgiotakis, 2019).…”