BOFIT Discussion Papers, Institute for Economies in Transition, Bank of Finland
No 21/2013:
Market discipline during crisis: Evidence from bank depositors in transition countries
Iftekhar Hasan ()
, Krzysztof Jackowicz ()
, Oskar Kowalewski ()
and Lukasz Kozlowski ()
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
disci-pline is usually the only viable and universal source of market
discipline for banks in emerging economies.
Keywords: depositor behavior; market discipline; crisis; emerging markets; market rumors; (follow links to similar papers)
JEL-Codes: G21; G28; (follow links to similar papers)
44 pages, August 12, 2013
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