Market Discipline and the Use of Stock Market Data to Predict Bank Financial Distress |
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Authors: | Isabelle Distinguin Philippe Rous Amine Tarazi |
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Institution: | (1) Université de Limoges, LAPE, 5 rue Félix Eboué, BP3127, 87031 Limoges Cedex 1, France |
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Abstract: | We assess the extent to which stock market information can be used to estimate leading indicators of bank financial distress.
We specify a logit early warning model, designed for European banks, which tests if market based indicators add predictive
value to models relying on accounting data. We also study the robustness of the link between market information and financial
downgrading in the light of the safety net and asymmetric information hypotheses. Some of our results support the use of market-related
indicators. Other results show that the accuracy of the predictive power depends on the extent to which bank liabilities are
market traded.
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Keywords: | Bank market discipline bank risk market prices |
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