Systemic Effects of Bank Equity Issues: Competition, Stabilization and Contagion

Valeriya Dinger, Vlad Marincas and Francesco Vallascas
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Vlad Marincas: University of Osnabrueck, Rolandstr. 8, DE and University of Leeds
Francesco Vallascas: University of Leeds, Maurice Keyworth Building, Leeds LS2 9JT, UK

No 111, IEER Working Papers from Institute of Empirical Economic Research, Osnabrueck University

Abstract: We evaluate the abnormal returns of issuing and non-issuing banks around the announcement of Seasoned Equity Offerings (SEOs) and explore how the market reaction is influenced by aggregate systemic conditions and by the systemic risk contribution and exposure of banks. While we find evidence of negative abnormal returns for issuers, non-issuing banks benefit from positive abnormal returns around the SEO announcement. We show that these positive returns are not entirely explained by the competition channel, which has been well documented for non-financial firms. In contrast, we demonstrate that they also depend on a so far undocumented system-stabilizing channel. Furthermore, under certain circumstances, the system-stabilizing channel contributes to mitigating the negative reaction to SEO announcements for the issuing banks.

Keywords: SEOs; Banking Regulation; Banking Crises; Contagion; Systemic Risk (search for similar items in EconPapers)
JEL-codes: G21 G28 G32 (search for similar items in EconPapers)
Pages: 39
Date: 2018-01-24
New Economics Papers: this item is included in nep-ban
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