Do stock markets discipline US Bank Holding Companies: Just monitoring, or also influencing?

Abstract

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Equity Holders' Market Discipline in GCC Countries

“…It also conforms to the findings of Flannery (2001), who found no evidence of EH's influence or bondholders' monitoring of bank indicators. However, our finding contradicts the study by Baele et al (2014) on EHs' discipline. These authors found evidence for banks' reaction to market signals, as banks had swelled their long-term target capital and reduced their liquidity risk in response to these signals.…”

“…Jones et al (2013) found that banks imposed elevated returns rates on opaque investments, elevating systematic risk. Baele et al (2014) showed that EHs use the accounting information disclosed in banks' financial statements to assess banks' valuation and risk. Investors' valuations of banks were measured by the market-to-book ratio and the semi-volatility.…”

“…However, very few authors examined banks' reactions. Baele et al (2014) provided evidence that banks reacted to market signals; when receiving a risk signal, they increased their long-term target capital levels and decreased their liquidity risk. However, when receiving a negative valuation, they increased their target profit levels mainly by reducing their cost-to-income ratio.…”

“…EHs' discipline of banks has been considered in many countries in Europe and the US (Berger et al, 2000;Chicoma et al, 2003;Uchida & Satake, 2009;Schaeck et al, 2012;Fahlenbrach et al, 2012;Acharya et al, 2013;Baele et al, 2014). However, most studies have investigated only the first stage of this mechanism, EH monitoring.…”

How Do Depositors Respond to Bank Dividend Policy? Evidence from Market Discipline, Global Financial Crisis and COVID-19 Pandemic

“…The market discipline would be more efficient if the price of bank liabilities correctly incorporates full and qualitative information of bank credit risks proprieties, and then reflects the fair yield for risks (Ellis & Flannery, 1992). There exists a large literature on the market discipline in the banking literature, most of them however focus on the bank risk-taking behaviours without final conclusions (Bliss, 2004;Bliss & Flannery, 2002;Ashcraft, 2008;Baele et al, 2014;among others).…”