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The Effect of the Federal Deposit Insurance Corporation Improvement Act of 1991 on Bank Stocks

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  • Liang, Youguo
  • Mohanty, Sunil
  • Song, Frank

Abstract

In this study we use a multivariate regression model to investigate the effect of the passage of the Federal Deposit Insurance Corporation Improvement Act (FDICIA) of 1991 on returns to the shareholders of bank-holding companies. The empirical results suggest that the shareholders of well-capitalized banks benefited from the enactment of the FDICIA, while those of undercapitalized banks experienced significant losses during the announcement period. However, the shareholders of adequately capitalized banks did not gain or lose significantly from the enactment of the FDICIA. The FDICIA also affected stock returns of large&small bank-holding companies similarly.

Suggested Citation

  • Liang, Youguo & Mohanty, Sunil & Song, Frank, 1996. "The Effect of the Federal Deposit Insurance Corporation Improvement Act of 1991 on Bank Stocks," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 19(2), pages 229-242, Summer.
  • Handle: RePEc:bla:jfnres:v:19:y:1996:i:2:p:229-42
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    References listed on IDEAS

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    1. Sundaram, Sridhar & Rangan, Nanda & Davidson, Wallace III, 1992. "The market valuation effects of the Financial Institutions Reform, Recovery and Enforcement Act of 1989," Journal of Banking & Finance, Elsevier, vol. 16(6), pages 1097-1122, December.
    2. John J. Binder, 1985. "Measuring the Effects of Regulation with Stock Price Data," RAND Journal of Economics, The RAND Corporation, vol. 16(2), pages 167-183, Summer.
    3. repec:bla:joares:v:23:y:1985:i:1:p:370-383 is not listed on IDEAS
    4. Larry D. Wall, 2010. "Too-big-to-fail after FDICIA," Economic Review, Federal Reserve Bank of Atlanta.
    5. James, Christopher, 1983. "An analysis of intra-industry differences in the effect of regulation : The case of deposit rate ceilings," Journal of Monetary Economics, Elsevier, vol. 12(3), pages 417-432, September.
    6. Allen, Paul R & Wilhelm, William J, 1988. "The Impact of the 1980 Depository Institutions Deregulation and Monetary Control Act on Market Value and Risk: Evidence from the Capital Markets," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 20(3), pages 364-380, August.
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    Cited by:

    1. McKenzie, Michael D. & Brooks, Robert D. & Faff, Robert W. & Ho, Yew Kee, 2000. "Exploring the economic rationale of extremes in GARCH generated betas The case of U.S. banks," The Quarterly Review of Economics and Finance, Elsevier, vol. 40(1), pages 85-106.
    2. Spiegel, Mark M. & Yamori, Nobuyoshi, 2003. "The impact of Japan's financial stabilization laws on bank equity values," Journal of the Japanese and International Economies, Elsevier, vol. 17(3), pages 263-282, September.
    3. repec:eee:jbfina:v:86:y:2018:i:c:p:204-223 is not listed on IDEAS
    4. Jin, Justin Yiqiang & Kanagaretnam, Kiridaran & Lobo, Gerald J. & Mathieu, Robert, 2013. "Impact of FDICIA internal controls on bank risk taking," Journal of Banking & Finance, Elsevier, vol. 37(2), pages 614-624.

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