Bank Stock Performance and Bank Regulation Around the Globe
European Journal of Finance Vol. 24, Issue 2, pp. 77-113, 2018
55 Pages Posted: 5 Jun 2014 Last revised: 25 Feb 2018
Date Written: August 1, 2016
Abstract
We analyze the effect of bank capital, regulation, and supervision on the annual stock performance of global banks during the period of 1999-2012. We study a large comprehensive panel of international banks and find that higher Tier 1 capital decreases a bank’s stock performance over the whole sample period. However, during turbulent times stocks of more highly capitalized banks perform significantly better. Additionally, we find strong evidence that banks that are more likely to receive government bailout during financial distress realize smaller stock performance. In contrast, we find no convincing evidence that banks that generate higher non-interest income have a higher performance.
Keywords: Bank stock performance, bank regulation, capital, implicit bailout guarantee.
JEL Classification: G01, G21.
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