This Time Is the Same: Using Bank Performance in 1998 to Explain Bank Performance During the Recent Financial Crisis

Fahlenbrach, Rüdiger; Prilmeier, Robert; Stulz, René M.

doi:10.2139/ssrn.1779406

Cited by 129 publications

(184 citation statements)

References 29 publications

Supporting

Mentioning

166

Contrasting

Order By: Relevance

“…Moreover, even though there was an across‐the‐board increase in RMI after 1999, BHCs with high tail risk in 1998 did not have higher increases in RMI compared to the other BHCs. This result may explain the finding in Fahlenbrach, Prilmeier, and Stulz () that financial institutions with the worst performance in the 1998 crisis were also among the worst performers in the financial crisis of 2007 and 2008.…”

mentioning

confidence: 70%

“…That is, some BHCs may have a conservative risk culture and choose to take lower risks and put in place stronger risk management systems, whereas others may have an aggressive risk culture and may choose to take higher risks and also have weaker risk management functions. We refer to this as the “business model channel.” Support for the business model channel can be found in recent work by Fahlenbrach, Prilmeier, and Stulz (), who show that financial institutions with the worst performance in the 1998 Russian crisis were also the worst performers during the recent financial crisis.…”

Section: Theoretical Backgroundmentioning

confidence: 89%

“…A key property of an instrument is that it should not have any direct effect on the dependent variable in the regression (i.e., crisis‐period performance measures, and tail risk in the years after the Russian crisis). It could be argued that a BHC's own increase in RMI over the 1998 to 2000 period (denoted Δ RMI 1998–2000 ) does not satisfy this key property required of an instrument, because the underlying business model or risk culture of the BHC, which may be persistent (see Fahlenbrach, Prilmeier, and Stulz ()), can affect both the BHC's response to the Russian crisis and its performance and risk in subsequent years. Therefore, for each BHC, we instead focus on the average Δ RMI 1998–2000 for all other BHCs (i.e., excluding the BHC itself) in the size decile to which the BHC belonged in 1998.…”

Section: Additional Robustness Testsmentioning

confidence: 99%

“…First, Comparable BHCs 'Δ RMI 1998–2000 is not specific to a particular BHC; it is only an average measure over all other BHCs in the size decile to which the BHC belonged in 1998. Second, as Fahlenbrach, Prilmeier, and Stulz () note, the proximate causes of the 1998 crisis were very different from those of the financial crisis in 2007 to 2008; the former was triggered by events in Russia whereas the latter was triggered by problems in the housing sector in the United States. Therefore, it is unlikely that Comparable BHCs 'Δ RMI 1998–2000 is picking up any commonalities in investment decisions during 1998 and the years leading up to the financial crisis.…”

Section: Additional Robustness Testsmentioning

confidence: 99%

“…We obtain qualitatively similar results when we use the buy‐and‐hold return from August to December 1998 to identify the BHCs with the worst performance during the 1998 crisis. As Fahlenbrach, Prilmeier, and Stulz () note, the 1998 crisis began in August 1998 but was fairly short‐lived. Many bank stocks plummeted initially but then recovered somewhat subsequently.…”

mentioning

confidence: 99%

See 4 more Smart Citations

Stronger Risk Controls, Lower Risk: Evidence from U.S. Bank Holding Companies

Ellul¹,

Yerramilli

2013

The Journal of Finance

572

View full text Add to dashboard Cite

We construct a risk management index (RMI) to measure the strength and independence of the risk management function at bank holding companies (BHCs). The U.S. BHCs with higher RMI before the onset of the financial crisis have lower tail risk, lower nonperforming loans, and better operating and stock return performance during the financial crisis years. Over the period 1995 to 2010, BHCs with a higher lagged RMI have lower tail risk and higher return on assets, all else equal. Overall, these results suggest that a strong and independent risk management function can curtail tail risk exposures at banks.

show abstract

mentioning

confidence: 70%

Section: Theoretical Backgroundmentioning

confidence: 89%

Section: Additional Robustness Testsmentioning

confidence: 99%

Section: Additional Robustness Testsmentioning

confidence: 99%

mentioning

confidence: 99%

See 3 more Smart Citations

Stronger Risk Controls, Lower Risk: Evidence from U.S. Bank Holding Companies

Ellul¹,

Yerramilli

2013

The Journal of Finance

572

View full text Add to dashboard Cite

show abstract

Bank stock performance during the COVID-19 crisis: does efficiency explain why Islamic banks fared relatively better?

2022

View full text Add to dashboard Cite

This paper evaluates the stock performance of Islamic banks relative to their conventional counterparts during the initial phase of the COVID-19 crisis (from December 31, 2019, to March 31, 2020). Using 426 banks from 48 countries, we find that stock returns of Islamic banks were about 10–13% higher than those of conventional banks after controlling for a host of the bank- and country-level variables. This study explains the Islamic banks’ superior crisis stock performance by exploring the potential role of pre-crisis bank efficiency. In a univariate analysis, we document higher non-parametric Data Envelopment Analysis (DEA) efficiency levels for Islamic banks than conventional banks in the year preceding the COVID-19 crisis. Our multivariate regressions show that the risk-adjusted DEA efficiency scores can explain crisis stock returns for Islamic banks but not conventional banks. The evidence is robust to alternative measures of stock returns, efficiency models, and other empirical strategies. Finally, we present insight on the importance of key bank characteristics in determining the stock returns of conventional banks during the crisis period.

show abstract

Exploring the Nexus Between Human Capital, Corporate Governance and Performance: Evidence from Islamic Banks

2017

View full text Add to dashboard Cite

This paper offers novel insight into the Islamic banking business model by considering the effect of investments in human capital and corporate governance features on the market performance of Islamic banks. Based on a sample of 47 banks (30 full-fledged Islamic banks and 17 Islamic Shariah-windows) operating in different regions during the 2005-2010 period, and controlling for firm-specific characteristics, this paper finds investments in human capital to have a significant positive impact on the market value in the pre-and post-financial crisis period. Based on a market measure, this paper finds board size and CEO power to have a significant positive impact, while the size of Shariah Supervisory Board (SSB) has the opposite effect on market performance. The results further reveal that the Islamic banking sector is not a homogeneous group, with full-fledged Islamic banks having lax corporate governance mechanisms and large size, while their counterparts, Islamic Shariah-windows, having strong corporate governance mechanisms tend to invest more in human capital to yield positive market value. Overall, the analysis suggests that the financial crisis may have further spurred the impact of investments in human capital on the market performance.

show abstract

This Time Is the Same: Using Bank Performance in 1998 to Explain Bank Performance During the Recent Financial Crisis

Cited by 129 publications

References 29 publications

Stronger Risk Controls, Lower Risk: Evidence from U.S. Bank Holding Companies

Stronger Risk Controls, Lower Risk: Evidence from U.S. Bank Holding Companies

Bank stock performance during the COVID-19 crisis: does efficiency explain why Islamic banks fared relatively better?

Exploring the Nexus Between Human Capital, Corporate Governance and Performance: Evidence from Islamic Banks

Contact Info

Product

Resources

About