Market discipline during crisis: Evidence from bank depositors in transition countries

Iftekhar Hasan, Krzysztof Jackowicz, Oskar Kowalewski () and Łukasz Kozłowski

No 21/2013, BOFIT Discussion Papers from Bank of Finland Institute for Emerging Economies (BOFIT)

Abstract: The Central European banking industry is dominated by foreign-owned banks. During the recent crisis, for the first time since the transition, foreign parent companies were frequently in a worse financial condition than their subsidiaries. This situation created a unique opportunity to study new aspects of market discipline exercised by non-financial depositors. Using a comprehensive data set, we find that the recent crisis did not change the sensitivity of deposit growth rates to accounting risk measures. We establish that depositors' actions were more strongly influenced by negative press rumors concerning parent companies than by fundamentals. The impact of rumors was especially perceptible when rumors turned out ex post to be founded. Additionally, we document that public aid announcements were primarily interpreted by depositors as confirmation of a parent company's financial distress. Our results, indicating that depositors react rationally to sources of information other than financial statements, have policy implications, as depositor discipline is usually the only viable and universal source of market discipline for banks in emerging economies.

Keywords: depositor behavior; market discipline; crisis; emerging markets; market rumors (search for similar items in EconPapers)
JEL-codes: G21 G28 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (15)

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Related works:
Journal Article: Market discipline during crisis: Evidence from bank depositors in transition countries (2013)
Working Paper: Market Discipline during Crisis: Evidence from Bank Depositors in Transition Countries (2012)
Working Paper: Market Discipline during Crisis: Evidence from Bank Depositors in Transition Countries (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:bofitp:bdp2013_021

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