Search results

This study aims to understand investors’ reactions to news on fraud and pecuniary and regulatory action in privately owned and government-owned banks.

To examine the role of ownership holdings, this study deploys event study methodology and cross-sectional regression to analyze the abnormal returns and the intergroup dynamics. Event study methodology studies the abnormal return on stock prices on days when fraud, pecuniary actions and regulatory news were reported for 36 banks that are listed on the NSE. Data on news has been collected from Reuters for 110 months. Cross-sectional regression analyses are done to examine whether selected variables on bank characteristics influence the abnormal returns. Exploring the intergroup dynamics between government and privately owned banks helps to accentuate how stakeholders influence investor responses.

Private and government-owned banks display an anomalous return pattern during the events, though to varying degrees and for a longer duration. The sharp downturn observed in private banks in response to pecuniary and regulatory actions related to news can be attributed to the associated risk of these banks. Intergroup dynamics further demonstrate that the effect of such news regarding government-owned bank stocks is more pronounced on privately owned banks compared to the effect of news related to privately owned banks on public banks.

The study shows how ownership structure variedly impacts investors’ response to news related to fraud, and pecuniary and regulatory actions on Indian banks, which may eventually ask for customized investment approaches for government-owned and privately owned banks.

This study examines the influence of the ownership structure of banks on investors' behavior by dissecting the investors' response to news regarding performance indicators in private and government-owned banks.

The event study methodology is used for the analysis. The data for 35 banks (out of 38), listed on the National Stock Exchange (NSE) for a duration of 230 months (January 2001 to February 2020) is collected. A set of cross-sectional regression analyses is done to identify variables influencing the returns under differential circumstances.

Private banks seem to display a sharper response to negative changes in earnings, while government-owned banks show a more robust reaction to a positive change. The contrast is seen in the variables, having a bearing on the abnormal returns After controlling for a set of factors, the regression analysis shows the ownership structure may not matter on abnormal returns (on event day), the factors such as a change in quarterly earnings, firm-size and three-year average-sales growth influence the positive and negative changes in abnormal returns of government banks, and predictability for private banks is found to be poor regarding selected indicators.

The study evaluates the role of ownership structure on the heterogeneity in investors' responses to the financial performance of banks, thereby assisting in designing strategies to ensure the optimal outcome around the quarterly earnings announcements.