Market reaction to the expected loss model in banks

We investigate how investors perceive the adoption of expected-loss model (ELM) for impairment incorporated in IFRS 9. Using a sample European listed banks covering period standard-setting process 9, we examine whether market perceives new regulation to increase shareholder wealth. First, document positive reaction ELM events. Second, find that potential benefits are more pronounced larger banks, with lower profitability and higher systemic risk, those received public bailout positively skewed returns. Overall, these results support “monitoring” channel suggesting may lead greater bank transparency effective discipline, fundamental improving financial stability.