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

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  • Hasan, Iftekhar
  • Jackowicz, Krzysztof
  • Kowalewski, Oskar
  • Kozłowski, Łukasz

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 indicate that depositors react rationally to sources of information other than financial statements; this discovery has policy implications, as depositor discipline is usually the only viable and universal source of market discipline for banks in emerging economies.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Banking & Finance.

Volume (Year): 37 (2013)
Issue (Month): 12 ()
Pages: 5436-5451

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Handle: RePEc:eee:jbfina:v:37:y:2013:i:12:p:5436-5451

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Web page: http://www.elsevier.com/locate/jbf

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Keywords: Depositor behavior; Market discipline; Crisis; Emerging markets; Market rumors;

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Cited by:
  1. M. Disli & K. Schoors, 2013. "Bank rebranding and depositor loyalty," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 13/867, Ghent University, Faculty of Economics and Business Administration.
  2. Theologos Dergiades & Costas Milas & Theodore Panagiotidis, 2014. "Tweets, Google Trends and Sovereign Spreads in the GIIPS," Discussion Paper Series 2014_04, Department of Economics, University of Macedonia, revised Jun 2014.
  3. Brown, Martin & Guin, Benjamin & Morkoetter, Stefan, 2013. "Switching Costs, Deposit Insurance and Deposit Withdrawals from Distressed Banks," Working Papers on Finance 1319, University of St. Gallen, School of Finance.

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