This paper investigates the impact of financial penalties on the profitability and stock performance of banks. Using a unique dataset of 671 financial penalties imposed on 68 international listed banks over the period 2007 to 2014, we find a negative relation between financial penalties and pre-tax profitability but no relation with after-tax profitability. This result is explained by tax savings, as banks are allowed to deduct specific financial penalties from their taxable income. Moreover, our empirical analysis of the stock performance shows a positive relation between financial penalties and buy-and-hold returns, indicating that investors are pleased that cases are closed, that the banks successfully manage the consequences of misconduct, and that the financial penalties imposed are smaller than the accrued economic gains from the banks’ misconduct. This argument is supported by the positive abnormal returns accompanying on the announcement of a financial penalty.

This article studies the relationship between giving financial advice and the disposition effect in an online trading environment. Our empirical findings suggest that leader traders are more susceptible to the disposition effect than investors who are not being followed by any other trader. Using a difference-in-differences approach, we show that becoming a first-time financial advisor increases the disposition effect. This finding holds for investors who engage in foreign exchange trading and for investors who trade stocks and stock market indices. The increased behavioral bias may be explained by leaders feeling responsible to their followers, by a fear of losing followers when admitting a poor investment decision, or by an attempt by newly appointed leaders to manage their social image and self-image.

This paper investigates how individual attention triggers influence financial risk-taking based on a large sample of trading records from a brokerage service that sends standardized push messages on stocks to retail investors. By exploiting the data in a difference-in-differences (DID) setting, we find attention triggers increase investors’ risk-taking. Our DID coefficient implies attention trades carry, on average, a 19 percentage-point-higher leverage than non-attention trades. We provide a battery of cross-sectional analyses to identify the groups of investors and stocks for which this effect is stronger.