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Bank Disclosure and Market Assessment of Financial Fragility: Evidence from Turkish Banks’ Equity Prices

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Abstract

In this paper we explore whether Turkish banks with worsening indicators of financial fragility were subject to market monitoring during the years leading to the 2000/2001 crisis, and how the quality and timeliness of the disclosure affect market reaction. We find that shareholders reacted negatively to indicators of financial fragility such as increases in maturity mismatches, currency mismatches, and non-performing loans, showing shareholders’ concerns about the impact of financial fragility indicators on future profits. We also find that audited statements that show larger reporting lags, are not informative, pointing to the need of improving their timeliness. Finally, our study suggests that the finding that securities prices react to financial fragility indicators should not be taken as sufficient evidence of banks’ safety and soundness.

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Notes

  1. Bliss and Flannery (2002) emphasize that effective market discipline has two different components. The first one is investors’ ability to accurately assess the condition of a firm (market monitoring). The second one is investors’ ability to actually affect managerial actions (influencing). Our empirical tests address the first component of market discipline, monitoring.

  2. Table 1 and 2 describe the structure of assets and liabilities in the Turkish banking sector before the year 2001.

  3. Beaver et al. (1989), Flannery and James (1984a, b) and Schrand (1997) have studied how variation in U.S. banks’ stock prices is related to disclosed information on default risk and interest rate risk.

  4. Specifically, they analyze the information content of adverse supervisory evaluation of banks (also known as formal actions) that reveal to the public that the bank is deeply troubled, and that require the bank to take remedial actions.

  5. Before the formation of the Banking Regulation and Supervision Agency (BRSA) in June 1999, both the Treasury and the Central Bank conducted regulatory and supervisory actions on the banking sector.

  6. Capital Markets Board Regulation, Serial: XI, No:20, 28/11/2001.

  7. We explain this in detail in Section 3.3.

  8. La Porta et al. (1997), Sivakumar and Waymire (1993) among others, show that surprises in earnings announcements have a significant impact on abnormal returns.

  9. We also allow for a broader event window that includes 5 trading days before the event day but we do not find any evidence of information leakage leading to an earlier market reaction for that particular event window.

  10. The average number of banks disclosing on the same calendar date is 2.6.

  11. Clustering by time is an appropriate method only when there are a sufficient number of clusters. The bias in the clustered standard error estimates declines with the number of clusters, dropping from 27% when there are five clusters to 1% when there are 100 clusters. The number of clusters in our main regressions ranges from 246 to 107. Because it is higher than 100 we are confident that underestimation of true standard errors is not a problem in our regressions.

  12. A duration gap, by also accounting for the timing of the arrival of cash flows of assets and liabilities, would be a more precise measure. However it is not possible to construct it with the data from the financial statements.

  13. We choose the 3-month ex-post change because the median maturity of liabilities in our sample is 3 months, indicating that on average liabilities were repriced in the next 3 months following disclosure. Interest rate information, defined as average monthly deposit rates of the banking industry, is provided by the Central Bank of Turkey.

  14. Starting in the second quarter of 2000, all banks had to include both on-and off-balance sheet information when reporting their assets and liabilities in foreign currency.

  15. The Treasury was empowered to inspect banks financial standing. Özkan (2005) argues that given the Treasury’s need to finance the public sector, the Treasury had less incentive to be strict in regulating banks that held large amounts of government securities.

  16. We explain this in detail in Section 3.2.

  17. Amended by Act No. 4491.

  18. We also test whether the two coefficients of the interaction terms are statistically different. They are significantly different from each other at 10% level.

  19. Another possible explanation for the low explanatory power of our regressions is that accounting variables do not reflect future prospects and this can be a problem if future prospects are weakly related to current earnings. This is a recognized problem in the accounting literature (see for example Amir and Lev (1996)).

  20. To save space, we choose not to report these results, but they are available upon request.

  21. These results are available upon request.

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Acknowledgements

We thank Lieven Baele, Sigbjorn Atle Berg, Elena Carletti, Ben Craig, Marco Da Rin, Hans Degryse, Halit Gonenc, Jan Pieter Krahnen, Steven Ongena, Koen Schoors, and Rudi Vander Vennet, as well as an anonymous referee and participants at the workshop in Tilburg University, the conference on ‘Information in Bank Asset Prices: Theory and Empirics’ (Ghent) and the Conference on Corporate Governance in Emerging Markets (Istanbul) for valuable comments and suggestions. Günseli Tümer-Alkan gratefully acknowledges financial support form the European Corporate Governance Training Network (ECGTN) while writing this paper.

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Authors and Affiliations

  1. Department of Finance, Tilburg University—CentER, EBC, TILEC, P.O. Box 90153, 5000, LE, Tilburg, The Netherlands

    María Fabiana Penas

  2. Department of Finance, VU University Amsterdam, De Boelelaan 1105, 1081, HV, Amsterdam, The Netherlands

    Günseli Tümer-Alkan

Authors
  1. María Fabiana Penas
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  2. Günseli Tümer-Alkan
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Correspondence to Günseli Tümer-Alkan.

Appendix

Appendix

Table A.1: Data availability for the banks

The table displays listing periods of the banks on the Istanbul Stock Exchange. The listing periods are highlighted. A delisting of a bank indicates for its bankruptcy

   
Full size table

Data source: Istanbul Stock Exchange

Table A.2: Event dates for each bank

The table contains detailed information of banks’ financial statement disclosure dates. Instead of bank names (Akbank, Alternatifbank, Demirbank, Disbank, Esbank, Finansbank, Garanti Bankasi, Is Bankasi, Sekerbank, Tekstilbank, Yasarbank and Yapi ve Kredi Bankasi respectively) tickers in the Istanbul Stock Exchange are used in the table. When there is no information available about the event date, and it is denoted by N/A. Tekstilbank and Yapi ve Kredi Bankasi have two additional missing event dates for 1996/II and 1997/II respectively. Blank cells explain that for Demirbank, Esbank and Yasarbank there are no data after their delisting. Alternatifbank and Sekerbank went public after 1995 and 1997 respectively. Confounding events of dividend payouts and equity issues which fall in the event window of [−5, +5] are marked in bold

 

AKBNK

ALNTF

DEMIR

DISBA

ESBNK

FINBN

GARAN

ISCTR

SKBNK

TEKST

YABNK

YKBNK

1995:1

15.05.1995

 

02.05.1995

18.05.1995

05.05.1995

01.05.1995

01.05.1995

09.05.1995

 

19.04.1995

04.05.1995

18.05.1995

1995:2

01.08.1995

14.08.1995

01.08.1995

21.07.1995

31.08.1995

02.08.1995

04.08.1995

23.08.1995

 

08.08.1995

17.08.1995

25.08.1995

1995:3

19.10.1995

09.11.1995

20.10.1995

16.10.1995

10.11.1995

03.11.1995

30.10.1995

30.10.1995

 

20.10.1995

08.11.1995

06.11.1995

1995:4

12.02.1996

16.02.1996

19.01.1996

15.02.1996

21.03.1996

05.03.1996

01.03.1996

08.03.1996

 

18.01.1996

16.02.1996

07.03.1996

1996:1

10.05.1996

10.05.1996

19.04.1996

12.04.1996

09.05.1996

10.05.1996

09.05.1996

10.05.1996

 

08.05.1996

10.05.1996

10.05.1996

1996:2

12.08.1996

16.08.1996

23.07.1996

16.08.1996

13.08.1996

16.08.1996

16.08.1996

23.08.1996

 

N/A

21.08.1996

22.08.1996

1996:3

31.10.1996

08.11.1996

06.11.1996

08.11.1996

11.11.1996

11.11.1996

06.11.1996

11.11.1996

 

07.11.1996

11.11.1996

08.11.1996

1996:4

N/A

N/A

N/A

N/A

N/A

N/A

N/A

N/A

N/A

N/A

N/A

N/A

1997:1

13.05.1997

14.05.1997

13.05.1997

12.05.1997

13.05.1997

13.05.1997

07.05.1997

12.05.1997

12.05.1997

13.05.1997

13.05.1997

12.05.1997

1997:2

14.08.1997

27.08.1997

14.08.1997

28.08.1997

19.08.1997

22.08.1997

14.08.1997

14.08.1997

29.08.1997

05.09.1997

19.08.1997

N/A

1997:3

04.11.1997

10.11.1997

07.11.1997

12.11.1997

10.11.1997

06.11.1997

04.11.1997

10.11.1997

10.11.1997

01.11.1997

06.11.1997

10.11.1997

1997:4

16.03.1998

11.02.1998

27.02.1998

16.02.1998

28.01.1998

03.03.1998

17.02.1998

02.03.1998

13.03.1998

20.01.1998

13.03.1998

13.03.1998

1998:1

29.04.1998

11.05.1998

06.05.1998

02.05.1998

11.05.1998

24.04.1998

13.05.1998

13.05.1998

13.05.1998

13.05.1998

11.05.1998

13.05.1998

1998:2

01.10.1998

29.09.1998

06.10.1998

01.10.1998

05.10.1998

05.10.1998

05.10.1998

01.10.1998

02.10.1998

07.10.1998

01.10.1998

05.10.1998

1998:3

26.10.1998

04.11.1998

26.10.1998

14.10.1998

12.11.1998

02.11.1998

22.10.1998

13.11.1998

12.11.1998

16.10.1998

10.11.1998

09.11.1998

1998:4

17.02.1999

09.02.1999

17.02.1999

12.01.1999

04.02.1999

15.02.1999

11.02.1999

26.02.1999

12.03.1999

11.01.1999

09.03.1999

05.03.1999

1999:1

27.04.1999

03.05.1999

15.04.1999

14.05.1999

13.05.1999

10.05.1999

26.04.1999

10.05.1999

13.05.1999

29.04.1999

14.05.1999

07.05.1999

1999:2

09.08.1999

18.08.1999

11.08.1999

20.07.1999

27.08.1999

05.08.1999

29.07.1999

13.08.1999

26.08.1999

27.07.1999

27.08.1999

13.08.1999

1999:3

21.10.1999

10.11.1999

03.11.1999

11.10.1999

12.11.1999

09.11.1999

20.10.1999

28.10.1999

12.11.1999

20.10.1999

03.11.1999

27.10.1999

1999:4

15.02.2000

18.01.2000

03.02.2000

12.01.2000

 

21.02.2000

28.01.2000

15.02.2000

03.03.2000

12.01.2000

31.03.2000

25.02.2000

2000:1

02.05.2000

28.04.2000

18.04.2000

10.04.2000

 

10.05.2000

21.04.2000

05.05.2000

11.05.2000

19.04.2000

 

02.05.2000

2000:2

24.08.2000

18.08.2000

14.08.2000

07.08.2000

 

18.08.2000

17.08.2000

15.08.2000

25.08.2000

18.08.2000

 

23.08.2000

2000:3

31.10.2000

09.11.2000

01.11.2000

01.11.2000

 

08.11.2000

02.11.2000

13.11.2000

13.11.2000

09.11.2000

 

10.11.2000

2000:4

13.02.2001

28.02.2001

 

22.01.2001

 

22.02.2001

05.02.2001

15.02.2001

02.03.2001

20.02.2001

 

19.02.2001

2001:1

19.04.2001

11.05.2001

 

01.05.2001

 

30.04.2001

11.05.2001

11.05.2001

11.05.2001

11.05.2001

 

11.05.2001

2001:2

07.08.2001

24.08.2001

 

14.08.2001

 

24.08.2001

24.08.2001

15.08.2001

24.08.2001

24.08.2001

 

24.08.2001

2001:3

30.10.2001

09.11.2001

 

15.10.2001

 

09.11.2001

09.11.2001

09.11.2001

09.11.2001

09.11.2001

 

09.11.2001

  1. Data source: Istanbul stock exchange

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Penas, M.F., Tümer-Alkan, G. Bank Disclosure and Market Assessment of Financial Fragility: Evidence from Turkish Banks’ Equity Prices. J Financ Serv Res 37, 159–178 (2010). https://doi.org/10.1007/s10693-009-0076-5

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