The Stock Market and Bank Risk-Taking / Antonio Falato, David Scharfstein.

Format:

Book

Author/Creator:

Falato, Antonio.

Contributor:

National Bureau of Economic Research.

Scharfstein, David.

Series:

Working Paper Series (National Bureau of Economic Research) no. w22689.

NBER working paper series no. w22689

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2016.

Summary:

We present evidence that pressure to maximize short-term stock prices and earnings leads banks to increase risk. We start by showing that banks increase risk when they transition from private to public ownership through a public listing or an acquisition. The increase in risk is greater than for a control group of banks that intended but failed to transition from private to public ownership, a result that is robust to using a plausibly exogenous instrument for failed transitions. The increase in risk is also greater than for a control group of banks that were acquired but did not change their listing status. We establish that pressure to maximize short-term stock prices helps to explain these findings by showing that the increase in risk is larger for newly public banks that are more focused on short-term stock prices and performance.

Notes:

Print version record

September 2016.