Ownership and investor responses to news on fraud and pecuniary actions: a comparative analysis of Indian banks

Abstract

Purpose This study aims to understand investors’ reactions to news on fraud and pecuniary and regulatory action in privately owned and government-owned banks. Design/methodology/approach To examine the role of ownership holdings, this study deploys event study methodology and cross-sectional regression to analyze the abnormal returns and the intergroup dynamics. Event study methodology studies the abnormal return on stock prices on days when fraud, pecuniary actions and regulatory news were reported for 36 banks that are listed on the NSE. Data on news has been collected from Reuters for 110 months. Cross-sectional regression analyses are done to examine whether selected variables on bank characteristics influence the abnormal returns. Exploring the intergroup dynamics between government and privately owned banks helps to accentuate how stakeholders influence investor responses. Findings Private and government-owned banks display an anomalous return pattern during the events, though to varying degrees and for a longer duration. The sharp downturn observed in private banks in response to pecuniary and regulatory actions related to news can be attributed to the associated risk of these banks. Intergroup dynamics further demonstrate that the effect of such news regarding government-owned bank stocks is more pronounced on privately owned banks compared to the effect of news related to privately owned banks on public banks. Originality/value The study shows how ownership structure variedly impacts investors’ response to news related to fraud, and pecuniary and regulatory actions on Indian banks, which may eventually ask for customized investment approaches for government-owned and privately owned banks.