U.S. bank M&As in the post-Dodd-Frank Act era: Do they create value?

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.