Community Bank Consolidation and the Role of Technology Investment

During the 2010s, the number of community banks in the United States declined by almost one-third, a trend that has worried many stakeholders including communities losing their primary bank, regulators, and the industry itself. This paper provides evidence that the disappearance of community banks during this time is related to the demand to exploit the economies of scale associated with technology investments. This paper empirically documents that a community bank with more technology investments is more likely to be a target for acquisition. This paper addresses the endogeneity issues using coarsened exact matching approach and instrumental variable approach. This paper documents that acquirer banks achieve economies of scale to improve operation efficiency two and three years after the M&A transactions. A rich battery of robustness checks is conducted to confirm the main results