Stock Market Reaction to Financial Statement Certification by Bank Holding Company CEOS
FRB of New York Staff Report No. 170
35 Pages Posted: 2 Sep 2003
Date Written: July 2003
In 2002, the Securities and Exchange Commission mandated that the chief executive officers of large, publicly traded firms certify the accuracy of their company financial statements. In this paper, I investigate whether CEO certification has had a measurable effect on the stock market valuation of the forty-two bank holding companies subject to the SEC order. I find that these firms experienced a positive average abnormal return of 30 to 60 basis points on the day of certification - a result driven primarily by those BHCs that certified ahead of the SEC's deadline. Characteristics associated with greater opaqueness - BHC asset size, liquid asset holdings, and the extent of "risky" and information-intensive lending - are systematically associated with these certification day abnormal returns. In addition, average abnormal returns for not-yet-certifying BHCs were positive, though not statistically significant, on the day the first two BHCs certified, lending weak support to the idea that early certification by some BHCs may have signaled to investors that other BHCs were likely to certify. Overall, these results suggest that the certification requirement provided relevant information to investors and was thus an effective public policy tool, at least in the banking sector.
Keywords: banking, disclosure, financial statement certification
JEL Classification: G21, G28, G38
Suggested Citation: Suggested Citation