Do bank bondholders price banks’ ability to manage risk/return?

Cécile Casteuble (), Emmanuelle Nys and Philippe Rous ()
Additional contact information
Cécile Casteuble: CREM - Centre de recherche en économie et management - UNICAEN - Université de Caen Normandie - NU - Normandie Université - UR - Université de Rennes - CNRS - Centre National de la Recherche Scientifique, LAPE - Laboratoire d'Analyse et de Prospective Economique - GIO - Gouvernance des Institutions et des Organisations - UNILIM - Université de Limoges
Philippe Rous: LAPE - Laboratoire d'Analyse et de Prospective Economique - GIO - Gouvernance des Institutions et des Organisations - UNILIM - Université de Limoges

Post-Print from HAL

Abstract: In this paper, we empirically investigate whether bank bondholders value risk management, measured as risk-return efficiency (RRE), when pricing bond spreads. Based on a sample of 2,452 bonds issued by 78 European listed banks, for the period 2001–2015, we find evidence that the ability of banks to manage risk affects bond spreads: banks with more capable managers obtain a lower cost of debt. In particular our results show that bank bondholders are even more sensitive to RRE during the crisis period, for relatively poorly rated bonds, for unsecured/subordinated debt, and for long maturity debt. Our findings highlight that bondholders' monitoring of banks is effective and takes into account the efficiency of risk management during financial and economic downturns, but during sound periods bank bondholders should strengthen their monitoring of risk management.

Keywords: Bond spread; risk-return efficiency; stochastic frontier analysis; default risk premium; bondholders (search for similar items in EconPapers)
Date: 2018-06-04
References: Add references at CitEc
Citations:

Published in Applied Economics, 2018, 50 (44), pp.4788-4802. ⟨10.1080/00036846.2018.1467552⟩

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
Journal Article: Do bank bondholders price banks’ ability to manage risk/return? (2018)
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:hal:journl:halshs-02197104

DOI: 10.1080/00036846.2018.1467552

Access Statistics for this paper

More papers in Post-Print from HAL
Bibliographic data for series maintained by CCSD ().