Abstract

http://ssrn.com/abstract=2158780
 
 

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The Effect of State Pension Cut Legislation on Bank Values


Lee J. Cohen


University of Georgia - Department of Finance

Marcia Millon Cornett


Bentley University - Department of Finance

Hamid Mehran


Federal Reserve Bank of New York

Hassan Tehranian


Boston College - Department of Finance

March 2014


Abstract:     
This study provides an empirical analysis of the impact of Wisconsin and Ohio pension cut legislation on values of banks operating in Wisconsin and Ohio, banks operating in other states in which pension cut legislation was being considered as Wisconsin and Ohio went through its legislative process, and all publicly traded U.S. banks. We find that banks doing business in Wisconsin and Ohio experience positive (negative) stock price reactions to announcements that indicate an increased (a decreased) probability of pension cut legislation. The stock price reactions are positively related to the extent to which banks operate in Wisconsin and Ohio. Stock price reactions are rarely evident for banks in the other 13 states that were considering pension cut legislation during the period of analysis. We also find municipal bond spreads tighten and bank credit supply increases with pension cut legislation. Overall, the findings suggest states’ budget cuts effect bank values and credit supply through their municipal bond holdings.

Number of Pages in PDF File: 51

Keywords: Financial institutions, municipal debt, public pensions

JEL Classification: G11, G21, H72, H75

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Date posted: October 10, 2012 ; Last revised: March 29, 2014

Suggested Citation

Cohen, Lee J. and Cornett, Marcia Millon and Mehran, Hamid and Tehranian, Hassan, The Effect of State Pension Cut Legislation on Bank Values (March 2014). Available at SSRN: http://ssrn.com/abstract=2158780 or http://dx.doi.org/10.2139/ssrn.2158780

Contact Information

Lee J. Cohen
University of Georgia - Department of Finance ( email )
Terry College of Business
Athens, GA 30602-6253
United States
Marcia Millon Cornett
Bentley University - Department of Finance ( email )
175 Forest Street
Waltham, MA 02154
United States
Hamid Mehran
Federal Reserve Bank of New York ( email )
33 Liberty Street
New York, NY 10045
United States
212-720-6215 (Phone)
Hassan Tehranian (Contact Author)
Boston College - Department of Finance ( email )
Carroll School of Management
140 Commonwealth Avenue
Chestnut Hill, MA 02467-3808
United States
617-552-3944 (Phone)
617-552-0431 (Fax)
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