Market Discipline and the Use of Stock Market Data to Predict Bank Financial Distress

Isabelle Distinguin, Philippe Rous () and Amine Tarazi
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Philippe Rous: LAPE - Laboratoire d'Analyse et de Prospective Economique - GIO - Gouvernance des Institutions et des Organisations - UNILIM - Université de Limoges

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Abstract: We assess the extent to which stock market information can be used to estimate leading indicators of bank financial distress. We specify a logit early warning model, designed for European banks, which tests if market based indicators add predictive value to models relying on accounting data. We also study the robustness of the link between market information and financial downgrading in the light of the safety net and asymmetric information hypotheses. Some of our results support the use of market-related indicators. Other results show that the accuracy of the predictive power depends on the extent to which bank liabilities are market traded.

Keywords: words: Bank; Market Discipline; Bank Risk; Market Prices (search for similar items in EconPapers)
Date: 2006-10-01
Note: View the original document on HAL open archive server: https://unilim.hal.science/hal-00794214v1
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Citations: View citations in EconPapers (31)

Published in Journal of Financial Services Research, 2006, 30 (2), pp.151-176. ⟨10.1007/s10693-0016-6⟩

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Journal Article: Market Discipline and the Use of Stock Market Data to Predict Bank Financial Distress (2006)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-00794214

DOI: 10.1007/s10693-0016-6

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