IDEAS home Printed from https://ideas.repec.org/a/bla/jfinan/v80y2025i6p3223-3261.html

The Stock Market and Bank Risk‐Taking

Author

Listed:
  • ANTONIO FALATO
  • DAVID SCHARFSTEIN

Abstract

Using confidential supervisory risk ratings, we document that banks increase risk after going public compared to a control group of banks that filed to go public but withdrew their filings for plausibly exogenous reasons. The increase in risk improves short‐term performance at the expense of long‐term performance. We argue that the increase in risk stems from pressure to maximize short‐term stock prices and earnings once the bank is publicly traded. After going public, banks owned by investors that place greater value on short‐term performance increase risk more, and those managed by CEOs with more short‐term compensation also increase risk more.

Suggested Citation

  • Antonio Falato & David Scharfstein, 2025. "The Stock Market and Bank Risk‐Taking," Journal of Finance, American Finance Association, vol. 80(6), pages 3223-3261, December.
    • Handle: RePEc:bla:jfinan:v:80:y:2025:i:6:p:3223-3261
    DOI: 10.1111/jofi.13502
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/jofi.13502
    Download Restriction: no
    File URL: https://libkey.io/10.1111/jofi.13502?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Xudong An & Saket Hegde & Harren Jan & Mete Kilic & Rodney Ramcharan, 2025. "The Fed Put and Bank Risk-Taking Evidence from the Loan Book," Working Papers 25-42, Federal Reserve Bank of Philadelphia.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:jfinan:v:80:y:2025:i:6:p:3223-3261. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: https://edirc.repec.org/data/afaaaea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.