Nagaland University study finds banking fraud disclosures trigger sharper stock market losses for public sector banks than private ones
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DIMAPUR — Major banking fraud announcements lead to major negative stock market reactions, with public sector banks experiencing sharper losses than their private sector counterparts, according to a study conducted by researchers from Nagaland University (NU) and Pandit Deendayal Upadhyaya Adarsha Mahavidyalaya Tulungia, Assam.
The study examined how major banking fraud disclosures affected share prices of banks involved and whether these events had a spillover effect on other banks and investigated institutional characteristics that help banks maintain stock market stability during such crises.
According to an update, the findings highlighted how ownership structure, institutional credibility, and the size and maturity of a bank had a major influence on investor responses when financial misconduct occurs.
The findings were published in the BRICS Journal of Economics, a peer-reviewed, open-access journal published by Lomonosov Moscow State University.
The paper was co-authored by Joy Das from Nagaland University and Dr. Mahesh Dahal from Pandit Deendayal Upadhyaya Adarsha Mahavidyalaya Tulungia.
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The researchers analysed four major banking fraud cases involving IDBI Bank, Punjab National Bank, Bank of India, and Canara Bank. The team used stock market data from the Bombay Stock Exchange (BSE) and applied event study methodology and regression analysis to assess abnormal stock returns around the disclosure of frauds.
Joy Das of the Department of Commerce, Nagaland University, said, “We found significant negative abnormal returns for banks directly affected by fraud, particularly public sector banks. In contrast, private sector banks generally exhibited delayed or less pronounced market reactions. The differences indicate that investors do not respond the same to all banking frauds and that ownership structure plays an important role in shaping market perceptions.”
Dr. Mahesh Dahal, Assistant Professor in the Department of Commerce at Pandit Deendayal Upadhyaya Adarsha Mahavidyalaya Tulungia, added, “We also found spillover effects, suggesting that fraud announcements can influence the share prices of banks beyond the institution directly involved. The extent of these effects varied according to ownership structure and the timing of the announcements, highlighting the interconnected nature of investor sentiment within the banking sector.”
Another key finding was that larger and more mature banks demonstrated greater resilience to fraud-related market penalties. Their size and accumulated institutional experience appeared to help moderate adverse stock market reactions.