Are Banks Really Special? Evidence from a Natural Experiment

37 Pages Posted: 8 Dec 2018

See all articles by Justin Hung Nguyen

Justin Hung Nguyen

Victoria University of Wellington - Victoria Business School

Jing Shi

Macquarie UNiversity

Date Written: October 18, 2018

Abstract

Australia’s Kyoto Protocol ratification (KPR) in December 2007 mandates the country to reduce greenhouse gas (GHG) emissions, hence affecting firms in the highest emitting industries. We exploit the KPR as an exogenous increase in environmental risk facing the highest GHG emitters. We find that the stock market reactions to bank loan announcements significantly increase after the KPR for these emitters relative to non-emitters. The effect is stronger for borrowers with higher information asymmetry and financial constraints. The evidence suggests that banks can certify their borrowers’ environmental risk through their loan approvals, which confirms the certification role of banks.

Keywords: Bank loan announcement; Abnormal return; Environmental risk

JEL Classification: G14, G21, G32, Q51

Suggested Citation

Nguyen, Justin Hung and Shi, Jing, Are Banks Really Special? Evidence from a Natural Experiment (October 18, 2018). Macquarie University Faculty of Business & Economics Research Paper. Available at SSRN: https://ssrn.com/abstract=3269101 or http://dx.doi.org/10.2139/ssrn.3269101

Justin Hung Nguyen

Victoria University of Wellington - Victoria Business School ( email )

23 Lambton Quay
Pipitea
Wellington, 6011
New Zealand

Jing Shi (Contact Author)

Macquarie UNiversity ( email )

Eastern Rd.
North Ryde
Sydney, NSW 2109
Australia

HOME PAGE: http://https://researchers.mq.edu.au/en/persons/jing-shi

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