Why Did Thrift Goodwill Matter in 1989?
34 Pages Posted: 4 Mar 1999
Date Written: November 1998
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: Suggested Citation