Longo, SaraParbonetti, AntonioPugliese, Amedeo2025-03-202025-03-202022Longo S, Parbonetti A, Pugliese A. Investors’ expectations around quantitative easing: does liquidity injection afect European banks equally? Journal of Management and Governance. 2022;26(3):957-96. DOI: 10.1007/s10997-021-09579-51385-3457http://hdl.handle.net/10230/69975The role of liquidity in the banking industry is increasingly under the spotlight since the Global Financial Crisis (GFC) in 2007. Prior evidence offers contrasting findings on the role played by liquidity in banks: whilst it ensures systemic financial stability, at the same time it raises agency costs. Notwithstanding this, European banks benefited from a generous liquidity injection following the launch of the Quantitative Easing (QE) programme by the European Central Bank (ECB) in 2015–2016. We leverage on the release of the QE and investigate whether investors’ reactions to the announcements of new liquidity injections vary according to bank-level characteristics of the European banks: namely, their financial soundness, asset portfolio quality and the level of transparency. Our findings document an overall negative market reaction to the QE announcements; at a more fine-grained level of analysis we highlight that banks falling short of the regulatory requirements are not expected to benefit from additional liquidity. This study contributes to the literature on the role of liquidity in banks by showing important boundary conditions to the beneficial role of liquidity in banks, that is—because of the regulatory capital requirements—liquidity is only valuable to investors if it can be reinvested once constraints are overcome.application/pdfeng© The Author(s) 2021. This article is licensed under a Creative Commons Attribution 4.0 International License, which permits use, sharing, adaptation, distribution and reproduction in any medium or format, as long as you give appropriate credit to the original author(s) and the source, provide a link to the Creative Commons licence, and indicate if changes were made. The images or other third party material in this article are included in the article’s Creative Commons licence, unless indicated otherwise in a credit line to the material. If material is not included in the article’s Creative Commons licence and your intended use is not permitted by statutory regulation or exceeds the permitted use, you will need to obtain permission directly from the copyright holder. To view a copy of this licence, visit http://creativecommons.org/licenses/by/4.0/.info:eu-repo/semantics/articlehttp://dx.doi.org/10.1007/s10997-021-09579-5Capital marketsLiquidity injectionEuropean banksBank characteristicsinfo:eu-repo/semantics/openAccess