Market reaction to supranational banking supervision in Europe: Do firm- and country-specific factors matter?

Myriam García-Olalla () and Manuel Luna ()
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Myriam García-Olalla: University of Cantabria
Manuel Luna: University of Cantabria

Empirica, 2021, vol. 48, issue 4, No 5, 947-975

Abstract: Abstract This paper investigates the financial market´s perception regarding the effectiveness of the Single Supervisory Mechanism in Europe. Do investors believe that centralized supervision adds value compared to multiple supervision? . Do they feel uncertain about the supervisory role of the ECB? To answer these questions, a sample of 118 European Banks has been used finding that whereas in early dates the market reaction was positive reflecting the expectation of greater stability, it turned negative at the time the scope of the supervision was limited to only a group of banks. As might be expected, the reaction is significantly more negative for the directly supervised entities, anticipating a different and more demanding style of supervision that could lead to higher cost. This negative wealth effect is intensified for banks with higher price-to-book ratios or those located in countries with more developed financial systems and better investor protection. However, solvency and productivity firm indicators or low levels of perceived corruption moderate it. This research not only highlights the doubts and uncertainty of investors about the final applications of the SSM, but it could be also useful for policy makers and regulators in order to achieve a more harmonized supervision that improves the credibility of the systems and promote financial stability.

Keywords: European banking union; Financial regulation; SSM; Stock prices; Event studies (search for similar items in EconPapers)
JEL-codes: G14 G21 G38 M21 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (3)

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DOI: 10.1007/s10663-020-09493-3

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