The effect of inflation and the failure of Silicon Valley bank on shareholder wealth

This study examines how the collapse of Silicon Valley Bank (SVB) and heightenedinflation affected shareholders wealth in U.S. financial institutions. Using dailystock returns from February 15 to March 29, 2023, we calculate abnormal andcumulative abnormal returns to measure market reactions. Applying ordinaryleast squares (OLS) and difference-in- differences methods, we record a substantialreduction in shareholder wealth linked to SVB bankruptcy, exacerbated byinflationary pressures. These results highlight the systemic nature of financialshocks, where distress in individual institution can transmit broadly acrossmarkets. Our findings enhance the literature on financial institutions by sheddingthe light on the protective benefits of diversification diminishing during extremeadverse events. For policymakers, investors, and firms, the findings underscorethe importance of monitoring systemic risk and strengthening resilience againstcontagion effects in periods of heightened uncertainty