The fading stock market response to announcements of bank bailouts

Michele Fratianni and Francesco Marchionne ()

No 76, Mo.Fi.R. Working Papers from Money and Finance Research group (Mo.Fi.R.) - Univ. Politecnica Marche - Dept. Economic and Social Sciences

Abstract: We analyze the effects on bank valuation of government policies aimed at shoring up banks' financial conditions during the 2008-2009 financial crisis. Governments injected into troubled institutions massive amounts of fresh capital and/or guaranteed bank assets and liabilities. We employ event study methodology to estimate the impact of government-intervention announcements on bank valuation. Using traditional approaches, announcements directed at the banking system as a whole were associated with positive cumulative abnormal returns, whereas announcements directed at specific banks with negative ones. Findings are consistent with the hypothesis that individual institutions were reluctant to seek public assistance. However, when we correct standard errors for bank-and-time effects, virtually all announcement impacts vanish in Europe, whereas they weaken in the United States. The policy implication is that the large public commitments were either not credible or deemed inadequate relative to the underlying financial difficulties of banks.

Keywords: announcement; bank; event study; financial crisis; rescue plan (search for similar items in EconPapers)
JEL-codes: G01 G21 N20 (search for similar items in EconPapers)
Pages: 50
Date: 2013-01
New Economics Papers: this item is included in nep-ban, nep-eec and nep-fmk
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (28)

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Journal Article: The fading stock market response to announcements of bank bailouts (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:anc:wmofir:76

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