Publicly Traded Versus Privately Held Commercial Banks: Sensitivity to Growth Opportunities

Abstract

We test whether and to what extent listed U.S. commercial banks have been able to take advantage of their access to public capital markets to respond more efficiently to new growth opportunities. We examine over 100,000 quarterly observations of publicly traded and privately held U.S. commercial banking companies between 1984 and 2012. Identification is gained via instrumental variables estimation and by exploiting the natural exogeneity of growth opportunities in the commercial banking industry. We find that publicly traded banks are substantially more responsive to new growth opportunities than private banks, and that this superior investment responsiveness exists in both the organic and external (M&A) growth channels.