The fatter the tail, the shorter the sail

Abstract

Guided by the extreme value theory, this study empirically investigates the impact of tail risk measures on financial distress of publicly traded bank holding companies (BHCs) in the United States. Our results show that tail risk measures namely, value-at-risk and expected shortfall, are significantly and positively related to banks distress risk. Implying that BHCs with more frequent extreme negative daily equity returns induce higher tail risks, thereby increasing their likelihood of experiencing financial distress. Our results also show that tail risk measures enhance the explanatory power of traditional models explaining banks distress risk based on accounting information. These results indicate that market discipline is generally beneficial in managing and regulating banks, bolstering claims of the importance of macro-prudential supervision of financial institutions.

Publication DOI: https://doi.org/10.1111/acfi.13148
Divisions: College of Business and Social Sciences > Aston Business School
College of Business and Social Sciences > Aston Business School > Centre for Personal Financial Wellbeing
College of Business and Social Sciences > Aston Business School > Economics, Finance & Entrepreneurship
Additional Information: Publisher Copyright: © 2023 Accounting and Finance Association of Australia and New Zealand.
Uncontrolled Keywords: bank,bank distress,expected shortfall,tail risk,value-at-risk
Publication ISSN: 1467-629X
Last Modified: 16 May 2024 07:28
Date Deposited: 23 Aug 2023 13:40
Full Text Link:
Related URLs: https://onlinel ... 1111/acfi.13148 (Publisher URL)
PURE Output Type: Article
Published Date: 2023-07-25
Published Online Date: 2023-07-25
Accepted Date: 2023-07-01
Authors: Alsunbul, Saad
Alzugaiby, Basim
Chaudhry, Sajid (ORCID Profile 0000-0001-8769-8920)
Boujlil, Rhada

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Version: Accepted Version

Access Restriction: Restricted to Repository staff only until 25 July 2025.


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