Community bank consolidation and the role of technology investment

Abstract During the 2010s, the number of community banks in the United States declined by almost one‐third. This paper provides evidence that the disappearance of community banks is related to the demand for economies of scale associated with technology investment. This paper documents that community banks with more technology investment are more likely to become acquisition targets. To address endogeneity concerns, this study employs an exact matching approach and an instrumental variable approach. Our study shows that the acquirer banks effectively attain economies of scale, demonstrated by enhanced operational efficiency. A rich battery of robustness checks confirms the results.