Date of Award

1991

Document Type

Dissertation

Degree Name

Doctor of Philosophy (PhD)

Department

Finance

First Advisor

G. Geoffrey Booth

Abstract

The 1980s have been a decade of crisis for banks engaged in international lending. This dissertation examines the impact of twelve events related to the Latin American debt crisis on the market value of the U.S., U.K., and Canadian bank stocks. The existing literature is extended in several directions. First, different types of events and several events of the same type are analyzed to enhance the generality of the conclusions. Second, a general theoretical framework involving two testable hypotheses is utilized to interpret the economic significance of the events. Third, the capital regulation hypothesis is tested extensively and it helped to clarify some of the ambiguities presented by earlier literature on the Mexican moratorium event. Fourth, the Generalized Autoregressive Conditional Heteroscedasticity (GARCH) model is used to address some of the problems associated with the Ordinary Least Squares (OLS) market model. These include nonnormalities, nonlinearities, and heteroscedasticity, and Cornell and Shapiro's criticism against use of event study methods for studying the impact of the debt crisis. Finally, the international dimension of the Latin American problem is recognized by extending the analysis to the British and the Canadian banks. Most of the events produced significant event-day excess returns for the U.S. banks with Latin American loans. The market distinguished high-, medium-, and zero-exposure groups among banks. The four moratoria (Mexican, Argentinean, Bolivian, and Brazilian) as a class, produced strong and consistent results, although the underlying dynamics of the moratoria differed. This study provides perspective on the economic impact of capital regulation and demonstrates a link between external exogenous events and bank value. The analysis suggests that the GARCH model does not make a significant difference to event study results. The results for the British and the Canadian banks differ somewhat from those for the U.S. banks. Differences in capital regulation in the three countries may explain the differential reaction of the three markets for the same set of events related to the Latin American debt crisis.

Pages

261

DOI

10.31390/gradschool_disstheses.5189

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