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The impact of announcements of regulatory and law enforcement penalties on stock market valuation of US banks from 2000 to 2022

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  • Václav Brož

Abstract

Purpose - This paper aims to analyze stock market reactions to announcements of regulatory and law enforcement penalties imposed on banks operating in the USA. Design/methodology/approach - This paper examines abnormal stock market returns around penalty announcements for banks operating in the USA from 2000 to 2022. The authors use a comprehensive data set of nearly 600 penalties to conduct their event study. Findings - This paper finds evidence of positive and statistically significant abnormal returns on the day of the penalty announcement. However, the authors also observe negative and statistically significant abnormal returns days later, violating the semi-strong efficient market hypothesis. Originality/value - By accounting for confounding events and analyzing subsamples, the authors reconcile conflicting results from prior literature that have variously shown negative, null or positive stock market reactions to penalty announcements.

Suggested Citation

  • Václav Brož, 2024. "The impact of announcements of regulatory and law enforcement penalties on stock market valuation of US banks from 2000 to 2022," Journal of Financial Regulation and Compliance, Emerald Group Publishing Limited, vol. 32(4), pages 479-500, May.
    • Handle: RePEc:eme:jfrcpp:jfrc-01-2024-0007
    DOI: 10.1108/JFRC-01-2024-0007
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    More about this item

    Keywords

    Penalty; Banking; Misconduct; Enforcement action; Regulatory action; Financial regulation; C11; C21; C58; G14; G21; G28; G321; K22; K42;
    All these keywords.

    JEL classification:

    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • 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
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • K22 - Law and Economics - - Regulation and Business Law - - - Business and Securities Law
    • K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law

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