Monitoring vs. Influencing by Robert R. Bliss and Mark J. Flannery Market discipline is an article of faith among financial economists, and the use of market discipline as a regulatory tool is gaining credibility.
Substantial evidence supports the existence of market monitoring.
However, little evidence exists on market influence, and then only for stockholders and for rare events such as management turnover. This paper seeks evidence that U.S. bank holding companies security price changes reliably influence subsequent managerial actions. Market influence remains, for the moment, more a matter of faith than of empirical evidence. For further information, see instructions for using Adobe Acrobat files.