Market discipline in the Brazilian banking industry: an analysis for the subordinated debt holders |
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| Authors: | Helder Ferreira de Mendonça Renato Falci Villela Loures |
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| Institution: | 1.Department of Economics,Fluminense Federal University,Niterói,Brazil;2.National Council for Scientific and Technological Development (CNPq),Brasilia,Brazil;3.Rua Dr. Sodré,Rio de Janeiro,Brazil;4.Rio de Janeiro,Brazil |
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| Abstract: | Market discipline is a regulatory mechanism which has as its main task the punishment of bad risk management by financial
institutions. Subordinated debt holders are considered by the literature as the most propitious private agent to discipline
the financial institutions. The key to prove the existence of market discipline is to show the relationship between banks’
asset prices and its respective risks. The main objective of this article is an empirical analysis of the relation between
credit risk (ratings and accounting information) and debentures return for the Brazilian case. The results denote a weak presence
of market discipline in Brazil. |
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