The findings have been published in the peer-reviewed, open-access BRICS Journal of Economics
KRC TIMES Education Desk
LUMAMI, NAGALAND
A comprehensive new study conducted by researchers from Nagaland University and Pandit Deendayal Upadhyaya Adarsha Mahavidyalaya (PDUAM) Tulungia has revealed that announcements of major banking frauds trigger significant negative stock market reactions, with public sector banks (PSBs) experiencing sharper share price losses than their private sector counterparts.
The study, co-authored by Prof. Joy Das from the Department of Commerce, Nagaland University, and Dr. Mahesh Dahal, Assistant Professor in the Department of Commerce at PDUAM Tulungia, Assam, explores how ownership structures, institutional credibility, and bank size dictate market responses to financial misconduct.
The findings have been published in the peer-reviewed, open-access BRICS Journal of Economics.
Key Takeaways from the Research
- Public vs. Private Sector Impact: While fraud disclosures universally hurt stock valuations, public sector banks faced immediate and harsher penalties from investors compared to private sector banks, which often showed delayed or moderated reactions.
- Spillover Effects: The research uncovered notable contagion or spillover effects, meaning a fraud announcement at one institution can ripple outward to impact the share prices of other banks depending on timing and ownership structures.
- The Benefit of Size and Maturity: Larger and more mature banks demonstrated greater resilience against fraud-related market penalties, with their accumulated institutional scale helping to buffer adverse stock reactions.
- Methodology: The researchers analysed four major Indian banking fraud cases involving IDBI Bank, Punjab National Bank (PNB), Bank of India, and Canara Bank, using event study methodology and regression analysis on Bombay Stock Exchange (BSE) data.
Leadership Insights
Commenting on the significance of the research, Prof. Jagadish Kumar Patnaik, Vice-Chancellor of Nagaland University, stated:
“This research is a significant contribution to understanding the impact of banking fraud on 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.”
Implications for the Financial Sector
The study fills an important gap in understanding the dynamics of the Indian financial market by evaluating both directly targeted institutions and wider sector vulnerabilities. According to the authors, the findings offer vital lessons for:
- Regulators and Policymakers: Emphasizing the need for rigorous corporate governance, proactive risk management, and robust institutional safeguards.
- Investors: Providing a clearer framework for assessing institutional risk by factoring in ownership models, reputational buffers, and bank scale during financial misconduct disclosures.
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