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We investigate the nature of mid-loan relationships between bank-lenders and borrowers, to test whether firms borrow from banks to signal quality. Using the LPC DealScan, CRSP, and Wall Street Journal databases, we test whether borrower abnormal returns are related to bank, borrower, deal, and/or event characteristics during the duration of the loan. We demonstrate that borrower abnormal returns are related to mid-loan bank events, defined as an event resulting in bank abnormal returns beyond a specified threshold. The results suggest that borrowers are affected by bank events mid-loan, even when the event is not directly related to bank default.

The purpose of this paper is to determine the impact of loan concentration on the returns of Indonesian banks and examines whether bank ownership types affect the relationship between concentration and returns.

This research uses heuristic measures of concentration: The Hirschman–Herfindahl index and Deviation from Aggregated Averages are applied to Indonesian banks across all sectors. The data covers the pre and post global financial crises periods from 2003-2011 for 109 commercial banks in Indonesia. Panel feasible generalised least squares analysis was applied.

The findings show that loan concentration increases bank returns. The positive effect of concentration on returns tends to be more significant for domestic-owned banks. In addition, the interaction effect shows that the positive effect of concentration on returns is less for foreign-owned banks.

The Indonesian central bank changes to the reporting format of sectoral loan allocation by banks since 2012 in terms of the Indonesian Banking Statistics Details of Enhancement matrix requires separate data analysis for 2012 onwards. The findings of this paper could be enhanced by more detailed data like interest rate expenses and bank level sectoral non-performing loans data.

The findings suggest that a focus strategy provides better returns. Moreover, bank ownership types is an important factor to consider when setting a bank lending policy.

This paper is among the few studies where different measures of loan concentration in combination with measures of return are applied in Indonesia as an emerging Asian country. The research also provides evidence of the impact of concentration on the interest earnings of the loan portfolios of banks in addition to return on assets and return on equity that are generally applied as measures of return in previous research.

This paper aims to assess, from an empirical perspective, the research question if public media reports which relate concrete banks to concrete allegations of money laundering have an adverse impact on banks stock prices and what are the drivers of such impact?

The paper makes use of event study methodology and uses the constant mean and the market model. The event window is calibrated towards a five-day window, and the estimation window has a length of 90 days, in line with best academic practices. Drivers are identified by correlation analysis. and the market model uses ordinary least squares regression.

The application of event study methodologies yields the results that stock prices of affected banks generate, at the date of the news appearance, statistically significant negative abnormal returns under both the market model and the constant mean model. As negative abnormal returns have been mainly found at the date of the event itself, the findings confirm that the impacts of money laundering may be severe but short natured. In addition, the paper finds that the identified negative abnormal returns may be driven by the banks’ size in terms of total assets, by the bank’s profitability in terms of return on assets and by the bank’s sustainability risk.

The findings have implications in terms of banking and supervisory practices. In specific, the findings help to argue that banking consolidation is needed to lower the impacts of AML cases, as stock prices of larger banks show less sensitivity. In addition, the findings could be used to determine financial sanctions against banks violating AML regulation. Finally, the findings imply that AML news can have severe and fast-moving financial stability considerations and are, therefore, important in crisis situations.

As there appears to be no substantial research that applies event study methodology to the money laundering context, the combination of research question and methodology has an innovative character. In addition, there is no clear literature on media and money laundering.

The purpose of this paper is to study the market reactions of the banking industry to the Russian–Ukraine war.

This paper uses an event study methodology, regression analyses and interaction effects to study the effect of the war on banks stock prices and analyze factors that explain the cumulative abnormal return.

First, this study finds a significant decline of almost 1.5% in return on the war date. Similar patterns were observed for all continents, but Europe had the most severe drop of about 4%. Second, after excluding the contemporaneous influence of the whole market using the market model, global bank equities returns fell by about 1% on the war date, indicating that bank stocks were more severely impacted by the war than the average stock market. Net-of-market return approach further reveals that bank stock prices decreased 1.4% more on the event day compared to the prewar market average. Third, the impacts of the war and sanctions were persistent when the war continued. Banks stocks were most hit in Europe, Asia and North America.

This paper pioneers the study of the effect of the Russia–Ukraine war on the banking industry. This paper also analyzes the reaction pattern of bank stocks before, during and after the war to explain the behavior and expectations of investors toward the war.

This study examined the impact of; COVID-19 investor sentiment, COVID-19 cases, geopolitical risk (GPR), economic policy uncertainty (EPU), oil returns and Islamic banking on bank stock returns. In addition, it examined whether Islamic bank stock returns differed from conventional banks when interacting with selected variables.

This study consisted of 137 conventional and Islamic stock market listed banks in 16 Middle East and North Africa (MENA) countries from February 2020 to July 2021. Monthly data were used for bank stock returns, number of COVID-19 cases, COVID-19 investor sentiment, oil price and EPU, while GPR data were obtained annually. This paper used unconditional quantile regression (UQR) in its analysis.

COVID-19 investor sentiment and EPU negatively influenced bank stock returns. However, oil returns were only positive and significant in first quantile. Conversely, GPR negatively impacted bank returns up to the median quantile, while the impact was positive in upper quantiles. Islamic banks outperformed conventional banks in all quantiles. Additionally, GPR negatively influenced Islamic bank returns up to 75th quantile, while oil returns negatively impacted Islamic bank returns up to 95th quantile. Ultimately, COVID-19 investor sentiment and EPU positively influenced Islamic bank returns up to 95th quantile.

Market conditions must be considered when implementing investment decisions and policies, as the effects of market shocks are mostly asymmetrical. For example, it is important for international investors to take into consideration asymmetric factors, such as market uncertainty in oil market. Especially in bearish Islamic markets, bad news concerning uncertainty can be perceived as riskier than good news.

A change in health sentiment, such as COVID-19 cases and COVID-19 investor sentiment, can be used to determine future direction of conventional and Islamic stock markets. Asymmetric effects associated with market news can make portfolio management more effective. COVID-19 investor sentiment states can be used to predict Islamic market index dynamics in MENA region.

This paper offered insight into heterogeneity of market conditions and dependencies of Islamic banks' stock market returns on COVID-19 investor sentiment and uncertainty, among others that should be considered when implementing investment decisions and policies.

This study aims to extend the literature by extensively investigating the impact of foreign exchange and interest rate changes on the returns and volatility of bank stocks in Saudi Arabia, which is the largest dual banking industry.

This study employs the generalized autoregressive conditional heteroscedasticity (GARCH) model on stock returns of four fully Islamic Saudi banks and eight conventional Saudi banks.

The results showed that the foreign exchange rate return has a positive impact on Saudi conventional bank returns, while it has an adverse impact on Saudi Islamic bank returns. Moreover, a higher interest rate return has a positive impact on Saudi bank stock returns implying that the assets side is more sensitive to changes in interest rates than the liability side. Finally, higher foreign exchange and interest rates volatility increases the volatility of Saudi bank returns, where the former has the largest significant impact. Therefore, Saudi regulators should pay more attention to the risk management of their banks because this could threaten the stability of their financial system.

To the best knowledge of the author, this is the first study that tries to extensively analyze the joint impact of foreign exchange and interest rates on bank stock returns and volatility in Saudi Arabia by applying the GARCH model. The study uses a long data set from 2010 to 2019 that includes all Saudi banks and employs four measures of interest rates to increase the robustness of the results.

This study attempts to determine whether the level and volatility of interest rates affect the equity returns of commercial banks. Short‐term, intermediate‐term, and long‐term interest rates are used. Volatility is defined as the conditional variance of respective interest rates and is generated by using the ARCH estimation procedure. Two sets of models are estimated. The basic models attempt to determine the effect of contemporaneous and lagged interest rate volatility on bank equity returns, while the extended models incorporate additional contemporaneous macroeconomic variables. Contemporaneous interest rate volatility has little explanatory power, while lagged volatilities do possess some explanatory power, with the lag length varying depending on the interest rate series used and the time period examined. The results from the extended model suggest that the long‐term interest rate affects bank equity returns more adversely than the short‐term or the intermediate‐term interest rates. The findings establish the relevance of incorporating macroeconomic variables and their volatilities in models determining bank equity returns.

This paper aims to examine how banks’ accounting disclosure policies affect information content in stock prices and stock crash risk.

This paper uses 1996-2013 as the sample period. The final sample includes 10,045 observations in 37 countries. This paper uses stock return synchronicity to measure information content in stock prices. This study uses the frequency difference between extremely negative and positive stock returns to measure stock crash risk. To measure the level of bank accounting disclosure, this research follows Nier and Baumann (2006) to construct an aggregate disclosure index based on inclusions and omissions of a series of items in a bank’s annual accounting reports.

This paper finds that banks’ stocks have lower stock return synchronicity and fewer extremely negative returns if banks have higher levels of financial statement disclosure. These results suggest that banks’ stocks have higher information content and lower crash risk if banks’ information environment is more transparent.

Overall, this paper provides new insight about how to increase banks’ transparency and the safety of the banking industry, which is beneficial to economic growth. To increase banks’ transparency and reduce the possibility of extremely negative stock returns, one way to regulate banks is to increase their accounting disclosure. In addition, the extant literature (Chen et al., 2006, Durnev et al., 2003, 2004; Wurgler, 2000) demonstrates that firms with lower stock return synchronicity have more transparent information environments and higher investment efficiency. Thus, this paper finds that higher levels of bank accounting disclosure are associated with lower stock return synchronicity, which further reduces banks’ opacity and increases banks’ investment efficiency. Finally, compared to business firms, stock crash risk has much direr consequences because one bank’s stock crash will affect overall financial stability. Thus, it is important for authorities to know the effects of accounting disclosure on bank stock crash risk.

This paper aims to analyze the impact of conjectural “too-big-to-fail” (TBTF) guarantees on big and small US financial institutions’ stock prices during the 2008-2009 banking crisis.

The paper analyzes shocks to stock market investors’ expectations of government aid to banks in distress and respective spillover effects using an event study approach. We focus on three major events in late 2008, namely, the Lehman bankruptcy, the Citigroup bailout and the first announcement of the Capital Purchase Program (CPP) by the US Government.

The authors found significant differences in market reactions to the respective events between small and large banks. For both the Lehman and the CPP event, abnormal returns on big banks’ stocks are negative, while small banks’ stocks tend to generate positive abnormal returns. In contrast, large banks strongly outperform small banks in the case of the Citigroup bailout. Results for a control group of non-financial firms indicate that this behavior may be specific to the banking industry. The authors observed significant spillover effects to both competitors and non-competitors of Lehman and Citigroup, and concluded that while the Lehman event shook the widely held belief in an implicit TBTF subsidy to large banks, the TBTF doctrine was reinstated shortly thereafter.

This paper shows that conjectural TBTF guarantees are priced in by equity investors. While government aid to large banks in distress may prevent negative effects on the stability of the financial system, it may also create negative externalities by putting small banks at a competitive disadvantage. The findings suggest that US and European regulators’ recent policy measures directed at establishing reliable bank resolution schemes should be a step in the right direction to level the playing field for small and large financial institutions.

The purpose of this paper is to consider the impact on bank risk of portfolio diversification between traditional margin income and fee‐based income for banks operating in Australia.

Considering several performance variables, this analysis compares the benefits of diversification across different bank types relative to margin income and fee income. Further, regression analysis considers bank risk and revenue concentration.

This paper documents that fee‐based income is riskier than margin income but offers diversification benefits to bank shareholders. While improving bank risk‐return tradeoff, these benefits are of second order importance compared to the large negative impact of poor asset quality on shareholder returns.

These results have implications for all stakeholders in Australian banks. The results suggest that shareholders of banks will benefit from increased bank exposure to non‐interest income via diversification. From a regulatory perspective, diversification reduces the possibility of systemic risk, but caution must be offered with respect to banks pursuing absolute returns rather than monitoring risk‐return trade‐offs, and so exploiting the benefits of the implied guarantee offered by “too big to fail” However, shareholders should also monitor bank exposure to non interest income to ensure that they do not become over‐exposed to the point where the volatility effect outweighs the diversification benefits.

The results of this study suggest that Australian regulators should consider requiring increased disclosure of the composition of bank non‐interest income. Such disclosure would aid in understanding the changing nature of banking in Australia. Given the recent sub‐prime crisis in the USA and the role played by fee based income sourced from securitization, increased disclosure of the nature of bank non interest income is now of global importance. This disclosure is particularly germane within the context of the implementation of Basle II, with its increased emphasis upon market discipline, given that Stiroh found increased disclosure in this area is accompanied by improved market pricing for risk.