Opaque banks, price discovery, and financial instability

Jones, Jeffrey S.; Lee, Wayne; Yeager, Timothy J.

doi:10.1016/j.jfi.2012.01.004

Cited by 87 publications

(52 citation statements)

References 38 publications

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“…First, more equity is associated with lower analyst influence. The effect is both statistically and economically significant and consistent with the findings of Morgan (2002) and Jones et al (2012). The marginal effect is -0.60%, which is large in comparison with the unconditional probability of 8.6%.…”

Section: Cash Holdings and Stockholder Uncertaintysupporting

confidence: 82%

“…When a crisis does arise, more opaque assets may reduce investors' ability to distinguish between solvent and insolvent banks. This may cause distrust to gain hold and exacerbate systemic risk, with potential adverse consequences for the economy (Jones et al, 2012(Jones et al, , 2013. In contrast with more opaque assets, other assets such as treasury bonds, repurchase agreements, and fixed assets are presumed in the banking literature to reduce investor uncertainty.…”

Section: Introductionmentioning

confidence: 99%

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Bank Cash Holdings and Investor Uncertainty

d'Udekem

2014

SSRN Journal

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Section: Cash Holdings and Stockholder Uncertaintysupporting

confidence: 82%

Section: Introductionmentioning

confidence: 99%

Bank Cash Holdings and Investor Uncertainty

d'Udekem

2014

SSRN Journal

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“…However, after the financial crisis, the issue of both capital adequacy in the banking sector and regulation have been relevant. Some hypotheses have been developed by which the market reaction to the announcement of a capital increase is less favorable to banking institutions because of their complex activity and the opacity of their financial assets (Haggard & Howe, 2012;Jones et al, 2012). According to Krishnan et al (2010), the level of opacity causes an increased difficulty in the estimation of the banking capital increases, which leads to a higher perception of the overvaluation of the company when the capital increases are announced.…”

Section: Literature Reviewmentioning

confidence: 99%

Equity Rights Issue and Dilutive Effect: Evidence from Italian Listed Companies

Martino¹,

Busatto²

2018

IBR

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This article studies the stock price reaction to Seasoned Equity Offerings (SEOs) through the right issue technique, for Italian listed companies in the period between 2007 and 2016. A few days before the starting date of the capital increase operation, investors are provided with a complete information set of the final characteristics of the equity offerings. The study investigates whether this further information is price sensitive. An event study analysis is performed around two price sensitive dates: the “announcement date” of the equity issue and the “communication date” of its final characteristics. It also focuses on the reasons underlying the offer and on the industry effect. The findings show a significant negative abnormal return at the communication date for the full sample and for companies collecting financial resources for “Corporate Finance Transaction”, for "Capital Adequacy" and for “Restructuring”. A negative market reaction for all sectors is observed as well. Eventually, the article examines the possible causes underlying the negative stock price reaction at the communication date. The results suggest that the dilutive effect is the main explanation to the stock price overreaction.

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“…Our choice of industry is justified on the grounds that the assets held by financial institutions (such as banks, insurers, and asset management companies) are often opaque and difficult to value (Morgan, 2002;Jones et al, 2012;Flannery et al 2013). The use of earnout contracts in mergers involving financial institutions may lessen the likelihood of mis-valuation.…”

Section: Introductionmentioning

confidence: 99%

Earnout financing in the financial services industry

Barbopoulos

Molyneux

Wilson

2016

International Review of Financial Analysis

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This paper explores the effects of earnout contracts used in US financial services M&A. We use propensity score matching (PSM) to address selection bias issues with regard to the endogeneity of the decision of financial institutions to use such contracts. We find that the use of earnout contracts leads to significantly higher acquirer abnormal (short-and long-run) returns compared to counterpart acquisitions (control deals) which do not use such contracts. The larger the size of the deferred (earnout) payment, as a fraction of the total transaction value, the higher the acquirers' gains in the short-and long-run. Both acquirer short-and long-run gains increase when the management team of the target institution is retained in the post-acquisition period.Keywords: Earnouts; Acquisitions of financial institutions; Propensity score matching; Rosenbaum-bounds. AbstractThis paper explores the effects of earnout contracts used in US financial services M&A. We use propensity score matching (PSM) to address selection bias issues with regard to the endogeneity of the decision of financial institutions to use such contracts. We find that the use of earnout contracts leads to significantly higher acquirer abnormal (short-and long-run) returns compared to counterpart acquisitions (control deals) which do not use such contracts. The larger the size of the deferred (earnout) payment, as a fraction of the total transaction value, the higher the acquirers' gains in the short-and long-run. Both acquirer short-and long-run gains increase when the management team of the target institution is retained in the post-acquisition period.

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Opaque banks, price discovery, and financial instability

Cited by 87 publications

References 38 publications

Bank Cash Holdings and Investor Uncertainty

Bank Cash Holdings and Investor Uncertainty

Equity Rights Issue and Dilutive Effect: Evidence from Italian Listed Companies

Earnout financing in the financial services industry

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