Bank recapitalization in Europe: Informational content in the issuing method

Carlo Chiarella, Elena Cubillas and Nuria Suárez

Journal of International Financial Markets, Institutions and Money, 2019, vol. 63, issue C

Abstract: In this paper we aim to better understand the behavior of banks and the cost of bank recapitalization during crises. To do so, we study the announcement effect of 124 seasoned equity offerings (SEOs) by 66 listed banks from 20 European Union (EU) countries during the 2006–2016 period. Opposite to what has been observed for non-banks, where rights issues mitigate investors’ adverse selection concerns and wealth transfers for non-participating shareholders, we find that, for SEOs announced by banks during periods of crisis, the abnormal stock returns following the announcement of a rights issue are significantly more negative than for a public offering. More specifically, we find relatively more negative abnormal returns for rights issues of lower relative size, and for issues by larger and less capitalized banks. The same holds for rights issues in countries with relatively higher institutional quality, weaker and less profitable banks, lower restrictions on non-traditional banking activities, and higher bank competition.

Keywords: Banks; Regulatory capital; SEOs; Rights issues; Information asymmetries; Agency conflicts (search for similar items in EconPapers)
JEL-codes: G01 G14 G21 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:intfin:v:63:y:2019:i:c:s1042443119300423

DOI: 10.1016/j.intfin.2019.101134

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