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Market discipline and the evaluation of Euro financial bonds--An empirical analysis

  • Menz, Klaus-Michael
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    Within the context of the increasing discussion on a shift in financial regulatory philosophy from the currently prevailing rules-based approach to a more incentive-based supervisory procedure in which market discipline should play a decisive role in overcoming several moral hazard and efficiency problems of the financial system, the question regarding the evaluation of financial bonds has gained an important dimension. Such a disciplining market influence could namely be exercised if financial institutions were obliged to issue subordinated bonds on a regular basis (mandatory subordinated debt policy). However, the influence of market discipline will only be effective if the evaluation of different subordinated (and other) bonds occurs in a differentiated manner and dependent on the inherent risks. This study provides findings, on the basis of which this requirement for the Euro financial bond market can be regarded as fulfilled.

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    File URL: http://www.sciencedirect.com/science/article/pii/S0275-5319(10)00004-8
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    Article provided by Elsevier in its journal Research in International Business and Finance.

    Volume (Year): 24 (2010)
    Issue (Month): 3 (September)
    Pages: 315-328

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    Handle: RePEc:eee:riibaf:v:24:y:2010:i:3:p:315-328
    Contact details of provider: Web page: http://www.elsevier.com/locate/ribaf

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