BANK SIZE AND BANK VALUATION

This paper studies the relation between bank size and bank valuation. We use Tobin’s Q and market-to-book ratio as measures of bank valuation, and another two variables—natural logarithm of total assets and natural logarithm of total operating income—as measures of bank size. Using a sample of publicly-traded U.S. bank holding companies from 2002 to 2014, we find a quadric relation between bank size and bank valuations. Bank valuations will rise and then fall as bank size increases. This finding holds in different sample periods: before, during, and after the financial crisis of 2007-2009.