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Consumer protection and firm valuation: A study of overdraft protection and US banks

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  • Gabor, Michelle
  • Premti, Arjan
  • Jafarinejad, Mohammad

Abstract

This study investigates the impact of regulatory and voluntary overdraft protection (ODP) reductions on bank valuations. Using event study methodology and cross-sectional regression analysis, we find that banks have significantly positive cumulative abnormal returns (CAR) as a result of regulatory ODP reductions. The CAR is higher for banks with higher reliance on ODP income. The positive valuation effect diminishes for larger and well-capitalized banks. For voluntary ODP reductions, the valuation effect is negative, and more pronounced among highly profitable banks. The valuation decrease is attenuated for banks with higher capital ratios, and higher betas. These findings highlight the nuanced financial implications of consumer protection activities on bank valuation.

Suggested Citation

  • Gabor, Michelle & Premti, Arjan & Jafarinejad, Mohammad, 2024. "Consumer protection and firm valuation: A study of overdraft protection and US banks," Finance Research Letters, Elsevier, vol. 67(PB).
    • Handle: RePEc:eee:finlet:v:67:y:2024:i:pb:s1544612324009796
    DOI: 10.1016/j.frl.2024.105949
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    References listed on IDEAS

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    More about this item

    Keywords

    Banking; Consumer protection; Overdraft; Regulation; Financial inclusion; Valuation;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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