Photo Courtesy: nenow
Kohima: Public sector banks take a harder hit on the stock market when fraud comes to light compared to their private counterparts. A study from Nagaland University and Pandit Deendayal Upadhyaya Adarsha Mahavidyalaya Tulungia reveals that investors punish state-run institutions more severely after misconduct hits the headlines.
Researchers tracked four major scandals involving IDBI Bank, Punjab National Bank, Bank of India, and Canara Bank. They used Bombay Stock Exchange data to measure abnormal stock returns during these disclosure periods. The results appeared in the BRICS Journal of Economics, with Professor Joy Das and Mahesh Dahal leading the analysis.
The team found that ownership structure, institutional credibility, and bank size dictate how the market reacts. Larger, mature banks show more resilience, as their size helps cushion the blow. Investors view public sector banks with less grace when irregularities surface.
The study also tracked spillover effects. Fraud announcements often pull down share prices at banks not even involved in the specific crimes. Jagadish Kumar Patnaik, Vice-Chancellor of Nagaland University, noted the significance of the findings. He stated, "By examining four major Indian banking fraud cases, the study highlights how ownership structure, institutional credibility and bank size influence stock market reactions."
Private sector banks see slower or muted reactions from traders. The research suggests that clear governance and sound risk management act as shields. Regulators and investors can use these insights to better weigh risks when corruption claims emerge in the financial sector.
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