Are the Largest Banks Valued More Highly?

Bernadette A. Minton; René M. Stulz; Alvaro G. Taboada

doi:10.1093/rfs/hhz036

Are the Largest Banks Valued More Highly?

Bernadette A. Minton¹; René M. Stulz²; Alvaro G. Taboada³

¹ Fisher College of Business, The Ohio State University , · ² Fisher College of Business, The Ohio State University, NBER, and ECGI , · ³ College of Business, Mississippi State University

Review of Financial Studies 2019

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 much less so during the crisis. 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. Received December 20, 2017; editorial decision November 14, 2018 by Editor Itay Goldstein.

DOI: 10.1093/rfs/hhz036
Volume: 32 (12)
Pages: 4604-4652
Language: en
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