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Journal of Financial Services Research

, Volume 30, Issue 2, pp 151–176 | Cite as

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

  • Isabelle Distinguin
  • Philippe Rous
  • Amine TaraziEmail author
Article

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 

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Copyright information

© Springer Science + Business Media, LLC 2006

Authors and Affiliations

  • Isabelle Distinguin
    • 1
  • Philippe Rous
    • 1
  • Amine Tarazi
    • 1
    Email author
  1. 1.Université de LimogesLAPELimoges Cedex 1France

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