Are banks really special? Evidence from a natural experiment

Justin Hung Nguyen; Jing Shi

doi:10.1016/j.intfin.2021.101336

Are banks really special? Evidence from a natural experiment

Justin Hung Nguyen, Jing Shi^*

^*Corresponding author for this work

Department of Applied Finance

Research output: Contribution to journal › Article › peer-review

9 Citations (Scopus)

72 Downloads (Pure)

Abstract

Australia’s Kyoto Protocol ratification (KPR) in December 2007 mandates the country to reduce greenhouse gas (GHG) emissions, hence affecting firms in the highest emitting industries. We exploit the KPR as an exogenous increase in environmental risk facing the highest GHG emitters. We find that the stock market reactions to bank loan announcements significantly increase after the KPR for these emitters relative to non-emitters. The effect is stronger for borrowers with higher information asymmetry and financial constraints. The evidence suggests that banks can certify their borrowers’ environmental risk through their loan approvals, which confirms the certification role of banks.

Original language	English
Article number	101336
Pages (from-to)	1-16
Number of pages	16
Journal	Journal of International Financial Markets, Institutions and Money
Volume	72
DOIs	https://doi.org/10.1016/j.intfin.2021.101336
Publication status	Published - May 2021

Keywords

Bank loan announcement
Abnormal return
Environmental risk

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10.1016/j.intfin.2021.101336

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title = "Are banks really special? Evidence from a natural experiment",

abstract = "Australia{\textquoteright}s Kyoto Protocol ratification (KPR) in December 2007 mandates the country to reduce greenhouse gas (GHG) emissions, hence affecting firms in the highest emitting industries. We exploit the KPR as an exogenous increase in environmental risk facing the highest GHG emitters. We find that the stock market reactions to bank loan announcements significantly increase after the KPR for these emitters relative to non-emitters. The effect is stronger for borrowers with higher information asymmetry and financial constraints. The evidence suggests that banks can certify their borrowers{\textquoteright} environmental risk through their loan approvals, which confirms the certification role of banks.",

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AB - Australia’s Kyoto Protocol ratification (KPR) in December 2007 mandates the country to reduce greenhouse gas (GHG) emissions, hence affecting firms in the highest emitting industries. We exploit the KPR as an exogenous increase in environmental risk facing the highest GHG emitters. We find that the stock market reactions to bank loan announcements significantly increase after the KPR for these emitters relative to non-emitters. The effect is stronger for borrowers with higher information asymmetry and financial constraints. The evidence suggests that banks can certify their borrowers’ environmental risk through their loan approvals, which confirms the certification role of banks.

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Are banks really special? Evidence from a natural experiment

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Keywords

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