Corporate governance and the Dodd-Frank $10B threshold

Abstract

The financial crisis of 2007–2008 resulted in major changes to the financial industry including the passage of the Dodd-Frank Act in 2010. While the emphasis of Dodd-Frank was on systematically important banks that are “too big to fail”, the act also placed several conditions on financial institutions with assets greater than $10B. Hogan and Burns (2019) show that Dodd-Frank imposed higher non-interest expenses on financial institutions, especially smaller institutions. Bouwman, Hu, and Johnson (2018) look at how financial institutions modified their behavior following passage including delaying crossing the threshold. Agrawal and Knoeber (2001) find that firms in more regulated industries are more likely to have politically connected board members. This article examines whether the corporate governance of financial institutions with assets just below the $10B asset threshold affected their willingness to cross that threshold. Results indicate that firms with staggered boards and smaller boards took longer to cross the threshold while higher levels of ownership by the chief executive officer (CEO) resulted in faster crossings. Financial institutions were much quicker to pass the threshold in the later years of the study due to changes in the economic and regulatory environment.