The reputational impact of a public scandal in the portuguese banking sector

Abstract

When new information is released in the market, investors’ reactions are reflected in stock prices, according to the assumption of efficient markets of the semi-strong form. Baring this in mind, this thesis’ objective is to measure the reputational effect a public scandal has on Portuguese banks’ stock performance. The tested hypothesis is that the announcement that the banks have engaged in some kind of financial fraud or crime will impact its market value as a consequence of the reputational damage. The approach deployed to investigate the effects on the bank’s financial performance is the event study methodology, as it allows to measure any reputational effect in the form of extra financial loss/gain beyond the expected.The event selected will be the first time it was official that the banks engaged in some kind of fraud or misconduct. The actions that took place after the day of the scandal will be equally studied resourcing to multivariate regressions. The banks chosen to be studied were Millennium bcp and Banco Espírito Santo, since both banks got themselves into two of the biggest banking scandals in Portuguese history. The results proved the initial hypothesis to be correct, as the majority of the results in the event window showed an overall statistically significant negative impact on the stocks’ expected returns.

Date of Award	27 Apr 2022
Original language	English
Awarding Institution	Universidade Católica Portuguesa
Supervisor	Geraldo Cerqueiro (Supervisor)