An analysis of contagion and competitive effects at commercial banks

An analysis of contagion and competitive effects at commercial banks We examine whether an adverse event at one bank generates externalities for the banking industry, and assess whether the population of commercial banks is homogeneous. We find dividend reductions are negative events for both announcing money center and regional banks, but only reductions at money center banks have negative, contagion-type externalities. Dividend reductions at regional banks have positive competitive effects on geographic rivals. Regulatory enforcement actions induce negative valuation effects that are idiosyncratic to targeted banks, but actions against regional banks generate positive competitive effects on geographic rivals. Our evidence suggests that regional banking markets are not contestable. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Financial Economics Elsevier

An analysis of contagion and competitive effects at commercial banks

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Publisher
Elsevier
Copyright
Copyright © 1999 Elsevier Science S.A.
ISSN
0304-405x
DOI
10.1016/S0304-405X(99)00036-7
Publisher site
See Article on Publisher Site

Abstract

We examine whether an adverse event at one bank generates externalities for the banking industry, and assess whether the population of commercial banks is homogeneous. We find dividend reductions are negative events for both announcing money center and regional banks, but only reductions at money center banks have negative, contagion-type externalities. Dividend reductions at regional banks have positive competitive effects on geographic rivals. Regulatory enforcement actions induce negative valuation effects that are idiosyncratic to targeted banks, but actions against regional banks generate positive competitive effects on geographic rivals. Our evidence suggests that regional banking markets are not contestable.

Journal

Journal of Financial EconomicsElsevier

Published: Oct 1, 1999

References

  • Aspects of monetary and banking theory and moral hazard
    Bhattacharya, S.
  • Banking panics, information, and rational expectations equilibrium
    Chari, V.; Jagannathan, R.
  • Information and contagion effects of bank loan loss announcements
    Docking, D.; Hirshey, M.; Jones, E.
  • Dividend policy under asymmetric information
    Miller, M.; Rock, K.
  • Insiders and outsiders
    Rajan, R.
  • Asymmetric information, bank lending, and implicit contracts
    Sharpe, S.
  • The value of bank durability
    Slovin, M.; Sushka, M.; Polonchek, J.

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