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Don't talk too bad! stock market reactions to bank corporate governance news

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  • Carlini, Federico
  • Cucinelli, Doriana
  • Previtali, Daniele
  • Soana, Maria Gaia

Abstract

This paper investigates the effect of media talk on bank stock returns in response to corporate governance news. Using Loughran and McDonald's (2011) dictionary, we create four categories of word lists that define the positive/negative tone and degree of certainty/uncertainty of news. We document three relevant findings. First, negative news significantly affects bank stock returns. Second, media coverage and the degree of certainty of the news are associated with more severe stock market losses. Third, bank capital and risk-adjusted performance mitigate the effect of negative news on stock prices. Overall, our study suggests that media talk on bank corporate governance events is an important determinant of abnormal stock returns.

Suggested Citation

  • Carlini, Federico & Cucinelli, Doriana & Previtali, Daniele & Soana, Maria Gaia, 2020. "Don't talk too bad! stock market reactions to bank corporate governance news," Journal of Banking & Finance, Elsevier, vol. 121(C).
    • Handle: RePEc:eee:jbfina:v:121:y:2020:i:c:s0378426620302247
    DOI: 10.1016/j.jbankfin.2020.105962
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    More about this item

    Keywords

    Corporate governance; Bank; News; Event study; Text analysis;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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