When LIBOR becomes LIEBOR: Reputational Penalties and Bank Contagion

45 Pages Posted: 23 May 2018 Last revised: 23 Dec 2019

See all articles by Michele Fabrizi

Michele Fabrizi

University of Padua

Xing Huan

University of Warwick - Accounting Group

Antonio Parbonetti

University of Padua

Date Written: August 28, 2015

Abstract

We study whether commonality of incentives and opportunity to commit fraud triggers reputational contagion from culpable firms to non-culpable firms. Relying on a sample of thirty banks involved in fixing the LIBOR and a control sample of thirty banks, we find that banks' reputations suffered substantial damage upon the announcement of their involvement in the scandal. We also document reputational contagion spread from banks that manipulated LIBOR to banks that shared the same incentives and opportunity to commit the fraud. Additional analyses show that the reputational contagion is more pronounced for large derivatives dealers, who have had the strongest incentive to commit the fraud.

Keywords: Reputational Penalties, Bank Contagion, Fraud Triangle

JEL Classification: G14, M41

Suggested Citation

Fabrizi, Michele and Huan, Xing and Parbonetti, Antonio, When LIBOR becomes LIEBOR: Reputational Penalties and Bank Contagion (August 28, 2015). Available at SSRN: https://ssrn.com/abstract=3176745 or http://dx.doi.org/10.2139/ssrn.3176745

Michele Fabrizi

University of Padua ( email )

Via del Santo, 33
Padova, Padova 35123
Italy

Xing Huan (Contact Author)

University of Warwick - Accounting Group ( email )

Warwick Business School
Coventry CV4 7AL
United Kingdom

Antonio Parbonetti

University of Padua ( email )

Via del Santo 33
Padova, 35123
Italy
+39 049 8274261 (Phone)

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