The impact of announcements of regulatory and law enforcement penalties on stock market valuation of US banks from 2000 to 2022

Václav Brož

Journal of Financial Regulation and Compliance, 2024, vol. 32, issue 4, 479-500

Abstract: Purpose - This paper aims to analyze stock market reactions to announcements of regulatory and law enforcement penalties imposed on banks operating in the USA. Design/methodology/approach - This paper examines abnormal stock market returns around penalty announcements for banks operating in the USA from 2000 to 2022. The authors use a comprehensive data set of nearly 600 penalties to conduct their event study. Findings - This paper finds evidence of positive and statistically significant abnormal returns on the day of the penalty announcement. However, the authors also observe negative and statistically significant abnormal returns days later, violating the semi-strong efficient market hypothesis. Originality/value - By accounting for confounding events and analyzing subsamples, the authors reconcile conflicting results from prior literature that have variously shown negative, null or positive stock market reactions to penalty announcements.

Keywords: Penalty; Banking; Misconduct; Enforcement action; Regulatory action; Financial regulation; C11; C21; C58; G14; G21; G28; G321; K22; K42 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eme:jfrcpp:jfrc-01-2024-0007

DOI: 10.1108/JFRC-01-2024-0007

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