Changes in Market Perception of Riskiness: The Case of Too-Big-To-Fail

J. OF FINANCIAL RESEARCH

Posted: 3 Feb 1997  

Harold A. Black

University of Tennessee, Knoxville - Department of Finance

M. Cary Collins

The University of Tennessee

Breck L. Robinson

University of Delaware - Department of Finance

Robert L. Schweitzer

University of Delaware

Abstract

In 1984, the Comptroller of the Currency stated that the eleven largest banking firms were "too big to fail," implying they would receive de facto 100 percent deposit insurance. The question is whether this announcement altered the market's perception of the riskiness of all banking organizations, not just those included in the Comptroller's statement. We address this question with two tests. First, through the examination of changes in institutional equity ownership from 1980 through 1988, we find that the announcement is associated with increases in institutional ownership at a time when a comparable set of nonfinancial firms saw reductions in institutional holdings. Second, through the examination of stock returns behavior of bank holding companies around announcements of dividend cuts and omissions from 1974 through 1991, we find that the Comptroller's 1984 announcement altered the market's reaction to dividend cuts and omissions by bank holding companies not specifically included in the Comptroller's statement.

JEL Classification: G21

Suggested Citation

Black, Harold A. and Collins, M. Cary and Robinson, Breck L. and Schweitzer, Robert L., Changes in Market Perception of Riskiness: The Case of Too-Big-To-Fail. J. OF FINANCIAL RESEARCH. Available at SSRN: https://ssrn.com/abstract=8073

Harold A. Black (Contact Author)

University of Tennessee, Knoxville - Department of Finance ( email )

Knoxville, TN 37996
United States
423-974-1721 (Phone)
423-974-1716 (Fax)

Mitchell Cary Collins

The University of Tennessee ( email )

428 Stokely Management Center
Knoxville, TN 37996
United States

Breck L. Robinson

University of Delaware - Department of Finance ( email )

Alfred Lerner College of Business and Economics
Newark, DE 19716
United States

Robert L. Schweitzer

University of Delaware ( email )

Newark, DE 19716
United States

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