Market discipline during crisis : Evidence from bank depositors in transition countries

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Title: Market discipline during crisis : Evidence from bank depositors in transition countries
Author: Hasan, Iftekhar ; Jackowicz, Krzysztof ; Kowalewski, Oskar ; Kozłowski, Łukasz
Organization: Bank of Finland
Department / Unit: Institute for Economies in Transition (BOFIT)
Series: BOFIT Discussion Papers
Series number: 21/2013
Year of publication: 2013
Publication date: 14.8.2013
Published in: Published in Journal of Banking & Finance, Volume 37, Issue 12, December 2013, Pages 5436–5451
Pages: 44 s.
Keywords: pankkitoiminta; talletukset; kehittyvät markkinat; kriisit; riskit; informaatio; Itä-Eurooppa; käyttäytyminen; ulkomaiset pankit; Bofit-kokoelma; huhut; tallettajat
JEL: G21; G28
Abstract: The Central European banking industry is dominated by foreign-owned banks. During the recent crisis, for the first time since the transition, foreign parent companies were frequently in a worse financial condition than their subsidiaries. This situation created a unique opportunity to study new aspects of market discipline exercised by non-financial depositors. Using a comprehensive data set, we find that the recent crisis did not change the sensitivity of deposit growth rates to accounting risk measures. We establish that depositors' actions were more strongly influenced by negative press rumors concerning parent companies than by fundamentals. The impact of rumors was especially perceptible when rumors turned out ex post to be founded. Additionally, we document that public aid announcements were primarily interpreted by depositors as confirmation of a parent company's financial distress. Our results, indicating that depositors react rationally to sources of information other than financial statements, have policy implications, as depositor discipline is usually the only viable and universal source of market discipline for banks in emerging economies. JEL classification: G21; G28. Keywords: depositor behavior; market discipline; crisis; emerging markets; market rumors
Note: Ilmestynyt myös Journal of Banking & Finance 2013 ; December.

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