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The informational advantage of specialized monitors: the case of bank examiners

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Author Info

  • Robert DeYoung
  • Mark J. Flannery
  • William W. Lang
  • Sorin M. Sorescu

Abstract

Large commercial banking firms are monitored by specialized private sector monitors and by specialized government examiners. Previous research suggests that bank exams produce little useful information that is not already reflected in market prices. In this article, we apply a new research methodology to a unique data set, and find that government exams of large national banks produce significant new information which financial markets do not fully internalize for several additional months. Our results indicate that specialized government monitors can identify value-relevant information about private firms, even if those firms are already actively followed by investors and their private-sector agents.

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File URL: http://www.chicagofed.org/digital_assets/publications/working_papers/1998/wp98_4.pdf
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Bibliographic Info

Paper provided by Federal Reserve Bank of Chicago in its series Working Paper Series with number WP-98-4.

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Date of creation: 1998
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Handle: RePEc:fip:fedhwp:wp-98-4

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Related research

Keywords: Bank supervision ; Bank examination;

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References

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  1. Allen N. Berger & Sally M. Davies & Mark J. Flannery, 2000. "Comparing market and supervisory assessments of bank performance: who knows what when?," Proceedings, Federal Reserve Bank of Cleveland, pages 641-670.
  2. Beatty, Randolph P. & Ritter, Jay R., 1986. "Investment banking, reputation, and the underpricing of initial public offerings," Journal of Financial Economics, Elsevier, vol. 15(1-2), pages 213-232.
  3. James, Christopher, 1987. "Some evidence on the uniqueness of bank loans," Journal of Financial Economics, Elsevier, vol. 19(2), pages 217-235, December.
  4. Hand, John R M & Holthausen, Robert W & Leftwich, Richard W, 1992. " The Effect of Bond Rating Agency Announcements on Bond and Stock Prices," Journal of Finance, American Finance Association, vol. 47(2), pages 733-52, June.
  5. Lummer, Scott L. & McConnell, John J., 1989. "Further evidence on the bank lending process and the capital-market response to bank loan agreements," Journal of Financial Economics, Elsevier, vol. 25(1), pages 99-122, November.
  6. Carter, Richard B & Manaster, Steven, 1990. " Initial Public Offerings and Underwriter Reputation," Journal of Finance, American Finance Association, vol. 45(4), pages 1045-67, September.
  7. Edward J. Kane, 1991. "Dissecting current legislative proposals for deposit insurance reform," Proceedings, Federal Reserve Bank of Chicago, pages 126-135.
  8. Brennan, Michael J. & Subrahmanyam, Avanidhar, 1995. "Investment analysis and price formation in securities markets," Journal of Financial Economics, Elsevier, vol. 38(3), pages 361-381, July.
  9. Mikkelson, Wayne H. & Partch, M. Megan, 1986. "Valuation effects of security offerings and the issuance process," Journal of Financial Economics, Elsevier, vol. 15(1-2), pages 31-60.
  10. Rebel Cole & Jeffery Gunther, 1998. "Predicting Bank Failures: A Comparison of On- and Off-Site Monitoring Systems," Journal of Financial Services Research, Springer, vol. 13(2), pages 103-117, April.
  11. Chemmanur, Thomas J & Fulghieri, Paolo, 1994. " Investment Bank Reputation, Information Production, and Financial Intermediation," Journal of Finance, American Finance Association, vol. 49(1), pages 57-79, March.
  12. Billett, Matthew T & Flannery, Mark J & Garfinkel, Jon A, 1995. " The Effect of Lender Identity on a Borrowing Firm's Equity Return," Journal of Finance, American Finance Association, vol. 50(2), pages 699-718, June.
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