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Financial regulation and transparency of information: evidence from banking industry

Helder Ferreira de Mendonça (Department of Economics, Fluminense Federal University, Rio de Janeiro, Brazil)
Délio José Cordeiro Galvão (Central Bank of Brazil, Rio de Janeiro, Brazil)
Renato Falci Villela Loures (Itaú Unibanco Bank, São Paulo, Brazil)

Journal of Economic Studies

ISSN: 0144-3585

Article publication date: 31 August 2012

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Abstract

Purpose

The purpose of this paper is to see if a difference exists between the impact of the subprime crisis on countries with more transparency and more regulated finance than on others. A further objective is to explain the success of the Brazilian case in avoiding the financial crisis and to show empirical evidence for the presence of market discipline.

Design/methodology/approach

The paper offers a regulation and transparency index (RTI) based on 37 countries. Considering RTI and stock market index of developed economies, BRICs economies, and developing economies, cross‐country estimations are made. Furthermore, the analysis for market discipline in the Brazilian case is based on GMM panels, taking into account market discipline through subordinated debt holders (debentures).

Findings

The results indicate that a higher degree of regulation and transparency is related to a higher return and a lower volatility in the stock market during the subprime crisis. Moreover, one of the main reasons for the apparent success of the Brazilian case in facing the crisis is the combination of a strong regulation of the financial system and the presence of market discipline.

Practical implications

Transparency of information by the banking sector is relevant for the regulation of the financial system.

Originality/value

The paper presents new insights for the literature on financial regulation and transparency of information in the search for a framework capable of avoiding financial crisis.

Keywords

Citation

Ferreira de Mendonça, H., José Cordeiro Galvão, D. and Falci Villela Loures, R. (2012), "Financial regulation and transparency of information: evidence from banking industry", Journal of Economic Studies, Vol. 39 No. 4, pp. 380-397. https://doi.org/10.1108/01443581211255602

Publisher

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Emerald Group Publishing Limited

Copyright © 2012, Emerald Group Publishing Limited

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