The Information Content of Bank Examinations
Posted: 16 Apr 1999
Theory suggests that banks hold substantial private information. The main purpose of bank examinations is to acquire some of this information. We use event study methodology to explore whether bank examinations are associated with abnormal stock market returns. We identify three types of information effects from examinations--the net auditing effect of verifying the bank's books, the regulatory discipline effect of changing regulatory treatment and the private information effect of revealing information about bank condition. The only strong effect found is that examination downgrades appear to reveal unfavorable private information about bank condition.
JEL Classification: G14, G25
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