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Is the mispricing of bank earnings related to financial regulation uncertainty?

  • Tuan Q Ho
  • , Edward Lee
  • , Lobo Gerald
  • , Zhenmei Zhu*
  • *Corresponding author for this work

    Research output: Contribution to journal › Article (Academic Journal) › peer-review

    2 Citations (Scopus)
    104 Downloads (Pure)

    Abstract

    We examine the impact of financial regulation uncertainty on the mispricing of earnings in the banking sector. To the extent that the uncertainty generated by the regulatory process can trigger opinion divergence (rational attention), we expect it to delay (accelerate) share price responses to banks’ earnings news. Consistent with the dominance of the opinion divergence effect, we show that such uncertainty is positively associated with banks’ post-earnings announcement drift and this effect is stronger among banks that are more sensitive to financial regulatory uncertainty. Further analyses through analyst forecast error, analyst forecast dispersion, and idiosyncratic return volatility provide corroborative evidence of opinion divergence. Our findings remain consistent after a series of robustness tests. Although financial regulations seek to provide capital market stability, our evidence implies that regulatory uncertainty can invoke negative externalities on market information efficiency.
    Original languageEnglish
    Article number107180
    Number of pages20
    JournalJournal of Accounting and Public Policy
    Volume44
    Early online date26 Jan 2024
    DOIs
    Publication statusPublished - 1 Mar 2024

    Bibliographical note

    Publisher Copyright:
    © 2024 Elsevier Inc.

    Research Groups and Themes

    • AF Financial Reporting

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