Foreign Exchange Manipulation and the Equity Returns of Global Banks

Aigbe Akhigbe (), Bhanu Balasubramnian () and Ann Marie Whyte ()
Additional contact information
Aigbe Akhigbe: The University of Akron
Bhanu Balasubramnian: The University of Akron
Ann Marie Whyte: The University of Central Florida

Journal of Financial Services Research, 2020, vol. 57, issue 2, No 4, 207-230

Abstract: Abstract We investigate the valuation effects of foreign exchange manipulation for seven systemically important banks that settled with regulators and legal authorities. The seven settlement banks suffer a total market value loss of $48 billion that far exceeds the $10 billion in regulatory and criminal fines. We attribute the difference of $38 billion to a market-imposed reputational penalty, which we define as the expected decline in the present value of future cash flows due to higher regulatory and financing costs and lower revenues. However, only five of the seven settlement banks experience reputational penalties that are higher than the assessed fines. Our evidence suggests that the market responds differentially based on the distinctive circumstances related to each institution’s involvement. We also find evidence of negative valuation effects for other competing global banks that are more pronounced for those banks that have greater systemic importance and control a greater share of the foreign exchange market.

Keywords: Foreign exchange manipulation; Systemically important banks; Reputational penalty; Information spillover effects; Competitive effects; Operational risk (search for similar items in EconPapers)
JEL-codes: F31 F39 G14 G21 G32 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://link.springer.com/10.1007/s10693-018-0301-1 Abstract (text/html)
Access to the full text of the articles in this series is restricted.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:kap:jfsres:v:57:y:2020:i:2:d:10.1007_s10693-018-0301-1

Ordering information: This journal article can be ordered from
http://www.springer.com/journal/10693

DOI: 10.1007/s10693-018-0301-1

Access Statistics for this article

Journal of Financial Services Research is currently edited by Haluk Unal

More articles in Journal of Financial Services Research from Springer, Western Finance Association Contact information at EDIRC.
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().