Informational externalities of seasoned equity issues. Differences between banks and industrial firms

Myron B. Slovin, Marie Sushka, John A. Polonchek

Research output: Contribution to journalArticle

47 Citations (Scopus)

Abstract

We examine share-price reactions of commercial bank common stock issues and find negative effects on rival commercial and investment banking firms. In comparison, we find no such intra-industry effects for equity issues by industrial firms. Our results support theoretical models in which bank loan portfolios impound asymmetric information about client firms, so that adverse individual bank announcements generate external information effects on other banks. A policy implication of these results is that regulatory pressures applied to individual banks induce spillover costs for the commercial and investment banking industries. Our evidence also indicates that the legal separation of commercial and investment banking activities is artificial.

Original languageEnglish (US)
Pages (from-to)87-101
Number of pages15
JournalJournal of Financial Economics
Volume32
Issue number1
DOIs
StatePublished - 1992

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Investment banking
Commercial banking
Externalities
Equity issues
Announcement
Loan portfolio
Commercial banks
Bank loans
Industry effects
Spillover
Costs
Information effects
Share prices
Price reaction
Asymmetric information
Policy implications
Banking industry

ASJC Scopus subject areas

  • Accounting
  • Strategy and Management
  • Economics and Econometrics
  • Finance

Cite this

Informational externalities of seasoned equity issues. Differences between banks and industrial firms. / Slovin, Myron B.; Sushka, Marie; Polonchek, John A.

In: Journal of Financial Economics, Vol. 32, No. 1, 1992, p. 87-101.

Research output: Contribution to journalArticle

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