TY  - JOUR
AB  - Bank profit warnings represent a milder form of negative news than a bank failure. Yet, they may contain signals about a bank or its rivals because the information is transmitted when the bank believes that the market is overly optimistic about its future earnings. Thus, the profit warning serves as a means by which insiders of the bank can reduce the asymmetric information between the bank’s insiders and its investors. We find that banks experience negative valuation effects in response to their profit warnings. The banks’ profit warnings result in significant negative valuation effects for its corresponding rival banks, which implies that the warning carries valuable information about banking industry conditions. However, the effects on rivals are attenuated since the passage of Regulation Fair Disclosure (RFD). This implies that investors may be relying on more transparent sources of information about individual banks rather than relying on one bank’s warning as a signal about other banks. Furthermore, bank regulations may allow for more transparent communication by banks than that of nonbank firms.
VL  - 30
IS  - 9
SN  - 0307-4358
DO  - 10.1108/03074350410769254
UR  - https://doi.org/10.1108/03074350410769254
AU  - Jackson Dave
AU  - Madura Jeff
PY  - 2004
Y1  - 2004/01/01
TI  - Bank profit warnings and signaling
T2  - Managerial Finance
PB  - Emerald Group Publishing Limited
SP  - 20
EP  - 31
Y2  - 2024/04/25
ER  -