We examine the relation between banks’ corporate social responsibility (CSR) and financial performance in a context of the recent financial crisis. We find that banks, in general, appear to be ...rewarded for being socially responsible as financial performance is positively and significantly related to CSR scores. We find that the biggest banks pursue socially responsible activities to a significantly greater extent than smaller banks. Further, the largest banks see a steep increase in CSR strengths and a steep drop in CSR concerns after 2009.
We show that a pattern of earnings management in bank financial statements has little bearing on downside risk during quiet periods, but seems to have a big impact during a financial crisis. Banks ...demonstrating more aggressive earnings management prior to 2007 exhibit substantially higher stock market risk once the financial crisis begins as measured by the incidence of large weekly stock price "crashes" as well as by the pattern of full-year returns. Stock price crashes also predict future deterioration in operating performance. Bank regulators may therefore interpret them as early warning signs of impending problems.
This paper examines the relation between institutional investor involvement in and the operating performance of large firms. We find a significant relation between a firm’s operating cash flow ...returns and both the percent of institutional stock ownership and the number of institutional stockholders. However, this relation is found only for a subset of institutional investors: those less likely to have a business relationship with the firm. These results suggest that institutional investors with potential business relations with the firms in which they invest are compromised as monitors of the firm.
We find the financial condition of states impacts bank credit supply through their municipal bond holdings. In particular, we treat sudden political and statutory actions during the 2011 union ...bargaining rights debates in Wisconsin and Ohio as exogenous shocks to state solvency. We show bank valuations and municipal bond spreads adjust to the announcements, and, over longer horizons, a new lending channel linked to state solvency emerges, whereby banks supply credit as municipal bond appreciations free up capital.
► Financial performance ratios are related to the probability of receiving TARP funds. ► Income performance ratios are more significant for small, under-achiever banks. ► Liquidity is more the ...driving factor for large, over-achiever banks.
In this paper, we look at how the pre-crisis health of banks is related to the probability of receiving and repaying TARP capital. We find that financial performance characteristics that are related to the probability of receiving TARP funds differ for the healthiest (“over-achiever”) versus the least healthy (“under-achiever”) banks. We find that TARP under-achievers have some, but not consistent, weaknesses in income production. These banks also are experiencing liquidity issues as customers, shut out of public debt markets, get bank loans through drawdowns of loan commitments. Unlike TARP under-achievers, TARP over-achievers’ loans are performing well. Yet, liquidity issues (from low levels of liquid assets and core deposits and drawdowns of loan commitments) hurt the abilities of these banks to continue their lending. Differences between under-achiever and over-achiever banks are also found for repayment and deadbeat TARP banks.
This paper examines investors' anticipation of bidder and target merger candidacy and if investor anticipations about candidacy affect the distribution of value between bidder and target firm ...shareholders. We find that bidder firms can be predicted more accurately than target firms. To investigate how merger announcement period returns are distributed among bidder and target shareholders, we control for different degrees of predictability in bidder and target selection and find that the difference between bidder and target firm three-day cumulative abnormal returns around a merger announcement decreases significantly. Thus, the evidence supports the hypothesis that the asymmetry in investor anticipations about merger candidacy causes disparity in bidder and target firm announcement period abnormal returns.
This paper examines operating performance around commercial bank mergers. We find that industry-adjusted operating performance of merged banks increases significantly after the merger, large bank ...mergers produce greater performance gains than small bank mergers, activity focusing mergers produce greater performance gains than activity diversifying mergers, geographically focusing mergers produce greater performance gains than geographically diversifying mergers, and performance gains are larger after the implementation of nationwide banking in 1997. Further, we find improved performance is the result of both revenue enhancements and cost reduction activities. However, revenue enhancements are most significant in those mergers that also experience reduced costs.
In this paper we examine whether regulation can be used to substitute for internal monitoring mechanisms (percentage of outside directors, officer and director common stock ownership, and CEO/Chair ...duality) to control for agency conflicts in a firm. We find that, in general, the percentage of outside directors is negatively related to insider stock ownership, but is not affected by CEO/Chair duality. CEO/Chair duality is, however, less likely when insider stock ownership increases. We find these internal monitoring mechanisms to be significantly less related with regulated firms (banks and utilities). We conclude that to the extent that regulations reduce the impact of managerial decisions on shareholder wealth, effective internal monitoring of managers becomes less important in controlling agency conflicts.
Previous research has shown that affiliated analysts (those who are working for investment banks that underwrite securities for companies) have an incentive to provide optimistically biased ...recommendations from selective information they are given by the firm. In an effort to halt such activities, as of October 2000, Regulation Fair Disclosure (RegFD) prohibits selective disclosure of material non-public information by public companies to privileged individuals (such as favored research analysts) and requires broad, non-exclusionary disclosure of such information. We examine firms’ stock price reactions to investment recommendation changes from affiliated analysts versus unaffiliated analysts from October 1998 to November 2002, around the passage of RegFD. Similar to previous research, we find that investors reacted more significantly to recommendation downgrades by affiliated analysts than to those by unaffiliated analysts prior to the passage of RegFD. However, we find that the difference in the reactions to recommendation changes is not present after the passage of RegFD. We also find that stock price reactions to analysts’ (both affiliated and unaffiliated) recommendation changes decreased significantly after the passage of RegFD. Thus, RegFD appears to have curbed the selective disclosure of information (particularly negative information) by firms to affiliated analysts. Further, the smaller reactions to recommendation changes by all analysts after RegFD may reflect a change in analysts’ behavior (irrespective of information that is available) or a response by corporate managers to withhold information rather than risking a violation of fair disclosure rules.
This paper examines whether shareholder value-maximizing corporate governance mechanisms assist in reducing the managerial incentive to enter value-destroying bank acquisitions. We find that ...diversifying bank acquisitions earn significantly negative announcement period abnormal returns (AR) for bidder banks whereas focusing acquisitions earn zero AR. We then find that corporate governance variables (such as CEO share and option ownership and a smaller board size) in the bidding bank are less effective in diversifying acquisitions than in focusing acquisitions. These results are robust to the inclusion of the usual control variables.
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