Why Did Thrift Goodwill Matter in 1989?

34 Pages Posted: 4 Mar 1999

Date Written: November 1998

Abstract

The Financial Institutions Reform, Recovery, and Enforcement Act of 1989 limits thrift goodwill that can be counted as regulatory capital. This paper examines if and why the goodwill clause adversely affected the market value of thrifts. Main findings are that good will had a large negative effect on stock returns of low-capital thrifts in 1989 and that the negative effect persisted in the following two years. These findings suggest that a reduced put option value accounted for a large portion of the stock-price decline. The role of asymmetric information appears to have been small.

JEL Classification: G21, G32

Suggested Citation

Park, Sangkyun, Why Did Thrift Goodwill Matter in 1989? (November 1998). FRB of New York Staff Report No. 51, Available at SSRN: https://ssrn.com/abstract=151308 or http://dx.doi.org/10.2139/ssrn.151308

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