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Stock market reaction to financial statement certification by bank holding company CEOs

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Author Info
Beverly Hirtle

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Abstract

In 2002, the Securities and Exchange Commission mandated that the chief executive officers of large, publicly traded firms certify the accuracy of their company financial statements. In this paper, I investigate whether CEO certification has had a measurable effect on the stock market valuation of the forty-two bank holding companies subject to the SEC order. I find that these firms experienced a positive average abnormal return of 30 to 60 basis points on the day of certification-a result driven primarily by those BHCs that certified ahead of the SEC's deadline. Characteristics associated with greater opaqueness-BHC asset size, liquid asset holdings, and the extent of "risky" and information-intensive lending-are systematically associated with these certification day abnormal returns. In addition, average returns for not-yet-certifying BHCs were positive, though not statistically significant, on the first two certified, lending weak support to idea that early by some may have signaled investors other likely certify. Overall, results suggest requirement provided relevant information was thus an effective public policy tool, at least banking sector.

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Publisher Info
Paper provided by Federal Reserve Bank of New York in its series Staff Reports with number 170.

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Date of creation: 2003
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Handle: RePEc:fip:fednsr:170

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Related research
Keywords: Bank holding companies ; Executives ; Securities and Exchange Commission ; Securities ; Banks and banking - Accounting ; Corporations - Accounting ; Financial institutions - Law and legislation ; Banking law;

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This paper has been announced in the following NEP Reports: References listed on IDEAS
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.:
  1. Brown, Stephen J. & Warner, Jerold B., 1980. "Measuring security price performance," Journal of Financial Economics, Elsevier, vol. 8(3), pages 205-258, September. [Downloadable!] (restricted)
  2. Mark J. Flannery & Simon H. Kwan & M. Nimalendran, 1997. "Market evidence on the opaqueness of banking firms' assets," Proceedings, Federal Reserve Bank of Chicago, issue May, pages 470-485.
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  3. A. Craig MacKinlay, 1997. "Event Studies in Economics and Finance," Journal of Economic Literature, American Economic Association, vol. 35(1), pages 13-39, March. [Downloadable!] (restricted)
  4. Donald P. Morgan, 2002. "Rating Banks: Risk and Uncertainty in an Opaque Industry," American Economic Review, American Economic Association, vol. 92(4), pages 874-888, September. [Downloadable!]
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(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.)

  1. Guo Li & Lee Sanning & Sherrill Shaffer, 2009. "Statistical Opacity In The U.S. Banking Industry," CAMA Working Papers 2009-16, Australian National University, Centre for Applied Macroeconomic Analysis. [Downloadable!]
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