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Journal of Banking and Finance


Financial penalty;Misconduct;Bank fines;Bank profitability;Bank performance


  1. Hannes Köster
  2. Matthias Pelster


    2. BANKING


       This paper investigates the impact of financial penalties on the
      profitability and stock performance of banks. Using a unique dataset of
      671 financial penalties imposed on 68 international listed banks over
      the period 2007 to 2014, we find a negative relation between financial
      penalties and pre-tax profitability but no relation with after-tax
      profitability. This result is explained by tax savings, as banks are
      allowed to deduct specific financial penalties from their taxable
      income. Moreover, our empirical analysis of the stock performance shows a
      positive relation between financial penalties and buy-and-hold returns,
      indicating that investors are pleased that cases are closed, that the
      banks successfully manage the consequences of misconduct, and that the
      financial penalties imposed are smaller than the accrued economic gains
      from the banks’ misconduct. This argument is supported by the positive
      abnormal returns accompanying on the announcement of a financial


      Vol 79, Tahun 2017


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