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Market discipline in the governance of U.S. Bank Holding Companies: monitoring vs. influencing Author info | Abstract | Publisher info | Download info | Related research | Statistics Robert R. Bliss
Mark J. Flannery
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Market discipline is an article of faith among financial economists, and the use of market discipline as a regulatory tool is gaining credibility. Effective market discipline involves two distinct components: security holders' ability to accurately assess the condition of a firm ("monitoring") and their ability to cause subsequent managerial actions to reflect those assessments ("influence"). Substantial evidence supports the existence of market monitoring. However, little evidence exists on market influence, and then only for stockholders and for rare events such as management turnover. This paper seeks evidence that U.S. bank holding companies' security price reliably influence subsequent managerial actions. Although we identify some patterns consistent with beneficial market influences, we have not found strong evidence that stock or (especially) bond investors regularly influence managerial actions. Market influence remains, for the moment, more a matter of faith than of empirical evidence.
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Paper provided by Federal Reserve Bank of Chicago in its series Working Paper Series with number
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Date of creation: 2000Date of revision:
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Keywords: Bank holding companies ; Bank supervision ; Bonds ; Stocks ; Other versions of this item:
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references Cited by : (explanations , Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile , click on "citations" and make appropriate adjustments.)
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Other versions: Daniel M. Covitz & Diana Hancock & Myron L. Kwast, 2004.
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Finance and Economics Discussion Series
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"Testing the strong-form of market discipline: the effects of public market signals on bank risk ,"
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Andrea Sironi, 2001.
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David T. Llewellyn, 2001.
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