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Bank recapitalization in Europe: Informational content in the issuing method

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  • Chiarella, Carlo
  • Cubillas, Elena
  • Suárez, Nuria

Abstract

In this paper we aim to better understand the behavior of banks and the cost of bank recapitalization during crises. To do so, we study the announcement effect of 124 seasoned equity offerings (SEOs) by 66 listed banks from 20 European Union (EU) countries during the 2006–2016 period. Opposite to what has been observed for non-banks, where rights issues mitigate investors’ adverse selection concerns and wealth transfers for non-participating shareholders, we find that, for SEOs announced by banks during periods of crisis, the abnormal stock returns following the announcement of a rights issue are significantly more negative than for a public offering. More specifically, we find relatively more negative abnormal returns for rights issues of lower relative size, and for issues by larger and less capitalized banks. The same holds for rights issues in countries with relatively higher institutional quality, weaker and less profitable banks, lower restrictions on non-traditional banking activities, and higher bank competition.

Suggested Citation

  • Chiarella, Carlo & Cubillas, Elena & Suárez, Nuria, 2019. "Bank recapitalization in Europe: Informational content in the issuing method," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 63(C).
    • Handle: RePEc:eee:intfin:v:63:y:2019:i:c:s1042443119300423
    DOI: 10.1016/j.intfin.2019.101134
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    Cited by:

    1. Martynova, Natalya & Perotti, Enrico & Suarez, Javier, 2022. "Capital forbearance in the bank recovery and resolution game," Journal of Financial Economics, Elsevier, vol. 146(3), pages 884-904.
    2. Hernández, Javier & Población García, Francisco Javier & Suárez, Nuria & Tarancón, Javier, 2022. "A study on the EBA stress test results: influence of bank, portfolio, and country-level characteristics," Working Paper Series 2648, European Central Bank.

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    More about this item

    Keywords

    Banks; Regulatory capital; SEOs; Rights issues; Information asymmetries; Agency conflicts;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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