Guwahati: Banking fraud announcements trigger sharper stock market losses for public sector banks than their private sector counterparts, according to a study by researchers from Nagaland University and Pandit Deendayal Upadhyaya Adarsha Mahavidyalaya Tulungia, Assam.
The study found that ownership structure, institutional credibility and bank size influence how investors respond to financial misconduct. It also found that fraud disclosures can affect the share prices of banks beyond those directly involved.
The researchers analysed four major banking fraud cases involving IDBI Bank, Punjab National Bank, Bank of India and Canara Bank. Using stock market data from the Bombay Stock Exchange (BSE), they applied event study methodology and regression analysis to assess abnormal stock returns around the disclosure of the frauds.
The findings were published in the peer-reviewed, open-access BRICS Journal of Economics, published by Lomonosov Moscow State University.
The paper was co-authored by Professor Joy Das of Nagaland University and Mahesh Dahal, a professor at Pandit Deendayal Upadhyaya Adarsha Mahavidyalaya Tulungia, Assam.
Jagadish Kumar Patnaik, Vice-Chancellor of Nagaland University, said the research would deepen understanding of how banking fraud affects financial markets.
“By examining four major Indian banking fraud cases, the study highlights how ownership structure, institutional credibility and bank size influence stock market reactions. Such evidence-based research strengthens academic inquiry, promotes greater financial accountability and reinforces the importance of transparency and sound governance in the banking sector,” he said.
Joy Das of the Department of Commerce, Nagaland University, said the study found significant negative abnormal returns for banks directly affected by fraud, particularly public sector banks. Private sector banks, by contrast, generally experienced delayed or less pronounced market reactions.
The findings indicate that investors do not respond uniformly to banking fraud disclosures, with ownership structure playing an important role in shaping market perceptions, he said.
Mahesh Dahal, Assistant Professor in the Department of Commerce at Pandit Deendayal Upadhyaya Adarsha Mahavidyalaya Tulungia, said the study also identified spillover effects, with fraud announcements influencing the share prices of other banks.
The extent of these effects varied according to ownership structure and the timing of announcements, reflecting the interconnected nature of investor sentiment across the banking sector.
The researchers also found that larger and more mature banks were relatively resilient to fraud-related market penalties. Their size and accumulated institutional experience appeared to moderate adverse stock market reactions.
The study examined both banks directly affected by fraud and other institutions exposed to potential spillover effects, addressing a gap in research on the Indian financial market.
Its findings highlight the importance of institutional reputation, sound governance, credible safeguards and effective risk management in maintaining investor confidence. The research also offers insights for banking regulators, investors and financial professionals assessing the market risks associated with fraud disclosures.
The paper is available at https://doi.org/10.3897/brics-econ.7.e183393.