Effects of the 1970 Bank Holding Company Act: Evidence from Capital Markets

Authors

  • JOSEPH AHARONY,

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    • Graduate School of Business Administration, Tel Aviv University, Israel.
  • ITZHAK SWARY

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    • The Jerusalem School of Business Administration, The Hebrew University, Jerusalem, Israel.

      The authors thank Professors Michael J. Brennan, Stuart I. Greenbaum, and Richard S. Ruback for helpful comments. We also thank Ms. Harriet McLaughlin of North Carolina State University at Raleigh for assisting in programming computations. Any remaining errors are, of course, ours.


ABSTRACT

This study measures the effects of the 1970 amendment to the Bank Holding Company (BHC) Act on the profitability and risk of BHCs using capital market data. Differences in abnormal returns and risk among three portfolios of bank shares which differ in their regulatory status are examined in various periods preceding and following the enactment. No significant differences in performance and no change in the relative risk of any pair of portfolios were observed. Thus, the null hypothesis that the nonbank expansion provisions of the 1970 amendment had no effect on BHCs' risk and profitability cannot be rejected.

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