Market Discipline and the Use of Stock Market Data to Predict Bank Financial Distress

52 Pages Posted: 21 Apr 2005

See all articles by Amine Tarazi

Amine Tarazi

University of Limoges - Faculty of Law and Economic Science

Philippe Rous

University of Limoges

Isabelle Distinguin

Université de Limoges, LAPE

Multiple version iconThere are 2 versions of this paper

Date Written: November 2005

Abstract

We assess the extent to which stock market information can be used to estimate leading indicators of bank financial distress. We specify a logit early warning model, designed for European banks, which tests if market based indicators add predictive value to models relying on accounting data. We also study the robustness of the link between market information and financial downgrading in the light of the safety net and asymmetric information hypotheses. Some of our results support the use of market-related indicators. Other results show that the accuracy of the predictive power depends on the extent to which bank liabilities are market traded.

Keywords: Bank, Market Discipline, Bank Risk, Market Prices

JEL Classification: G21, G28, G33, M41, M47

Suggested Citation

Tarazi, Amine and Rous, Philippe and Distinguin, Isabelle, Market Discipline and the Use of Stock Market Data to Predict Bank Financial Distress (November 2005). Available at SSRN: https://ssrn.com/abstract=703621 or http://dx.doi.org/10.2139/ssrn.703621

Amine Tarazi (Contact Author)

University of Limoges - Faculty of Law and Economic Science ( email )

5 rue Felix Eboue
Limoges, 87000
France

Philippe Rous

University of Limoges ( email )

rue François Mitterrand
Limoges Cedex, FL Limoges 87031
France

Isabelle Distinguin

Université de Limoges, LAPE ( email )

5 rue Félix Eboué BP3127
LIMOGES, 87031
France

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