The Information Content of Bank Examinations

Posted: 16 Apr 1999

See all articles by Allen N. Berger

Allen N. Berger

University of South Carolina - Darla Moore School of Business; Wharton Financial Institutions Center; European Banking Center

Sally M. Davies

Government of the United States of America - International Banking Section

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Abstract

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

Suggested Citation

Berger, Allen N. and Davies, Sally M., The Information Content of Bank Examinations. Journal of Financial Services Research, Vol. 14, October 1998. Available at SSRN: https://ssrn.com/abstract=159269

Allen N. Berger (Contact Author)

University of South Carolina - Darla Moore School of Business ( email )

1705 College St
Francis M. Hipp Building
Columbia, SC 29208
United States
803-576-8440 (Phone)
803-777-6876 (Fax)

Wharton Financial Institutions Center

Philadelphia, PA 19104-6367
United States

European Banking Center

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

Sally M. Davies

Government of the United States of America - International Banking Section ( email )

20th & C Streets NW
Washington, DC 20551
United States
202-452-2908 (Phone)
202-452-6424 (Fax)

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