| Abstract: | On May 19, 1987, Citicorp announced (after markets closed) that it would add $3 billion to its loan loss reserve in recognition of the poor quality of outstanding loans to Third World countries. Eleven other money-center banks followed this policy over the next five months. The reported reactions of politicians, economists, and market analysts to the increased loan loss reserves varied from despair to praise. Nevertheless, the important issue is the investor's reaction as evidenced by changes in the market prices of the banks' stock. This article uses an event study methodology to shed some light on the issue.Florida Atlantic University |
