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Market discipline and the evaluation of Euro financial bonds--An empirical analysis

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  • Menz, Klaus-Michael

Abstract

Within the context of the increasing discussion on a shift in financial regulatory philosophy from the currently prevailing rules-based approach to a more incentive-based supervisory procedure in which market discipline should play a decisive role in overcoming several moral hazard and efficiency problems of the financial system, the question regarding the evaluation of financial bonds has gained an important dimension. Such a disciplining market influence could namely be exercised if financial institutions were obliged to issue subordinated bonds on a regular basis (mandatory subordinated debt policy). However, the influence of market discipline will only be effective if the evaluation of different subordinated (and other) bonds occurs in a differentiated manner and dependent on the inherent risks. This study provides findings, on the basis of which this requirement for the Euro financial bond market can be regarded as fulfilled.

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  • Menz, Klaus-Michael, 2010. "Market discipline and the evaluation of Euro financial bonds--An empirical analysis," Research in International Business and Finance, Elsevier, vol. 24(3), pages 315-328, September.
    • Handle: RePEc:eee:riibaf:v:24:y:2010:i:3:p:315-328
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