Measuring the impact of US regulatory sanctions on banks: an eWOM based analysis of relative market sentiment

Purpose
Building on social support and prospect theory, this study examines how regulatory sanctions affect firm-specific electronic word of mouth (eWOM) from both news media and Twitter across one, three and five-day event windows.

Design/methodology/approach
The study introduces the Relative Sentiment Score (RSS), a novel metric that normalises event-day sentiment against pre and post sanction periods. Using fixed effects panel data regression, it analyses sentiment data from Bloomberg on US listed banks between 2015 and 2024 to track and compare eWOM across platforms.

Findings
The analysis reveals significant negative market reactions to regulatory sanctions, with stronger effects observed for more severe sanctions. It also shows that Twitter sentiment lags behind news media, challenging assumptions about the immediacy of social media in reflecting market sentiment.

Research limitations/implications
The study is limited to US listed banks and select eWOM sources, potentially overlooking broader market influences and investor diversity. Future research could examine how different investor groups, such as retail versus institutional investors, respond to regulatory sanctions.

Practical implications
The study offers banks a tool (RSS) to anticipate market reactions and improve risk management after sanctions. It also helps regulators understand market impact, aiding in the timing and communication of enforcement actions.

Originality/value
RSS provides a direct comparison of sentiment across news and social media platforms and captures the composite effect of these sentiment changes on overall sentiment dynamics. The study contributes to both financial market and eWOM literature by highlighting platform specific temporal dynamics and is first to integrate RSS.