IDEAS home Printed from https://ideas.repec.org/a/fip/fedker/00064.html
   My bibliography  Save this article

Bank Financial Restatements and Market Discipline

Author

Listed:
  • Marsh, W. Blake

    (Federal Reserve Bank of Kansas City)

  • Roman, Raluca A.

    () (Federal Reserve Bank of Kansas City)

Abstract

Banks may reissue financial statements for several reasons, ranging from simple accounting or clerical errors to fraud. Regardless of the reason, financial restatements send negative signals to the public, potentially driving stakeholders to undertake actions that are costly to the restating bank. These actions constitute “market discipline” and may incentivize banks to report financial information accurately. But whether financial restatements lead to market discipline is an empirical question. For example, strict bank regulation might blunt disciplinary effects if stakeholders believe regulations prevent excessive risk-taking. {{p}} W. Blake Marsh and Raluca Roman investigate whether three types of bank stakeholders—shareholders, depositors, and loan customers—discipline banks that misreport financial statements. They find strong empirical evidence that shareholders and depositors exercise market discipline on banks, and limited evidence that loan customers exert discipline. Overall, stakeholders’ reactions to bank restatements are economically important, suggesting restating banks face higher costs consistent with market discipline.

Suggested Citation

  • Marsh, W. Blake & Roman, Raluca A., 2018. "Bank Financial Restatements and Market Discipline," Economic Review, Federal Reserve Bank of Kansas City, issue Q II, pages 25-53.
  • Handle: RePEc:fip:fedker:00064
    DOI: 10.18651/ER/2q18MarshRoman
    as

    Download full text from publisher

    File URL: https://doi.org/10.18651/ER/2q18MarshRoman
    File Function: https://doi.org/10.18651/ER/2q18MarshRoman
    Download Restriction: no

    More about this item

    Keywords

    Banks; Shareholders; Loans; Restatements;

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

    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:fip:fedker:00064. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (LDayrit). General contact details of provider: http://edirc.repec.org/data/frbkcus.html .

    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 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.

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

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.