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Aalto University School of Business Master's Theses are now in the Aaltodoc publication archive (Aalto University institutional repository)
School of Business | Department of Finance | Finance | 2014
Thesis number: 13534
The persistence of bank performance in crises: European evidence
Author: Kajova, Karoliina
Title: The persistence of bank performance in crises: European evidence
Year: 2014  Language: eng
Department: Department of Finance
Academic subject: Finance
Index terms: rahoitus; financing; rahoitusmarkkinat; financial markets; kriisi; crisis; pankit; banks; menestyminen; success; osakkeet; shares; tuotto; rate of return; konkurssit; bankruptcy; Venäjä; Russia; Eurooppa; Europe
Pages: 81
Key terms: bank performance persistence, bank stock returns, bank failure, The Financial crisis, The Russian default, European banks
Abstract:
PUPROSE OF THE STUDY:

This thesis studies the persistence of bank performance in crises, and whether some banks are inclined to perform more weakly in crises than others. Specifically, the objective is to study whether a European bank's stock return in the Russian crisis of 1998 can explain its stock return and probability of failure in the financial crisis of 2007-2009. Moreover, this thesis also examines which attributes are present in those banks that performed badly in both crises.

DATA AND METHODS:

The sample includes 164 publicly listed companies; all the banks, financial services companies, life and nonlife insurance companies that existed both in July 1998 and in July 2007 in Thomson Reuters Datastream and that are based in one of the 16 Western European countries presented in Table 3. All sample companies are referred to as banks. I acquire stock price data from Thomson Reuters Datastream and for accounting information I use Thomson Reuters Worldscope. I gather merger data from Securities Data Company (SDC) and LexisNexis. I search the news and the annual reports of banks for information about state aid, nationalization and causes for delisting. The hypotheses are tested by estimating ordinary least squares (OLS) and logit regressions.

RESULTS:

The results of this thesis do not support the hypothesis that banks that perform weakly in crises have a built-in trait in their risks culture and/or their business model that makes them vulnerable in crises. I do not find evidence that European banks' stock return in the crisis of 1998 explain their stock return or increase their probability of failure in the financial crisis. Specifically, I find that a bank's weak (good) performance in the financial crisis is explained by the bank's higher (lower) systematic risk and higher (lower) ex-ante measure of systemic risk prior to the financial crisis. I also find that banks from countries with a current account surplus (deficit) performed better (worse) in the financial crisis. Banks with higher leverage, a lower book-to-market ratio and a higher market capitalization had a higher probability of failure in the financial crisis. Furthermore, I find that the banks that were in the bottom group in both crises had more idiosyncratic risk before the crisis of 1998 than other banks, whereas, they exhibited more systematic and systemic risk before the financial crisis than other banks. This finding shows that bottom performers are associated with different attributes prior to each crisis.
Master's theses are stored at Learning Centre in Otaniemi.