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The Value of a Regulatory Seal of Approval

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  • Gupta, Atul

Abstract

I investigate whether obtaining a regulatory seal of approval adds to firm value. For a sample of 34 firms that acquired the insured deposits of failed banks, I find a significantly greater price response for firms that could benefit from obtaining a regulatory seal of approval than for firms that had recently obtained a similar form of approval. Further, abnormal returns to winning bidders are significantly larger when a regulatory seal of approval is likely to be more valuable, i.e., when the industry faces severe economic problems. In addition, bidder gains are significant only in markets where regulatory certification of a firm's health is important--markets that have recently experienced several bank failures. Finally, wealth transfers from the FDIC insurance fund may contribute to bidder gains. The evidence suggests that obtaining a regulatory seal of approval can positively affect firm value.

Suggested Citation

  • Gupta, Atul, 1997. "The Value of a Regulatory Seal of Approval," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 20(1), pages 111-128, Spring.
  • Handle: RePEc:bla:jfnres:v:20:y:1997:i:1:p:111-28
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    Cited by:

    1. Diane Scott Docking & Richard J. Dowen, 1999. "Market Interpretation Of Iso 9000 Registration," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 22(2), pages 147-160, June.
    2. Gupta, Atul & Misra, Lalatendu, 2002. "Regulatory learning in failed thrift auctions," Journal of Banking & Finance, Elsevier, vol. 26(4), pages 651-669, April.

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