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Watch out for bailout: TARP and bank earnings management

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journal contribution
posted on 28.09.2020, 13:33 by Yaoyao Fan, Yichu Huang, Yuxiang Jiang, Hong LiuHong Liu
We study the impact of the recent government bailout, called Trouble Asset Relief Program (TARP), on bank accounting quality. By adopting a difference-in-difference (DID) method, we find a significantly positive impact of TARP on earnings management of recipient banks, compared with their non-recipient peers. Further, we observe that TARP-recipient banks engage more in earnings-decreasing manipulation rather than earnings-increasing manipulation. This behavior is more obvious for those banks that voluntarily request for TARP funds. Also, participant banks change their accounting strategy to manipulate earnings upwards after TARP funds are paid back. Our findings confirm our hypothesis that TARP-recipient banks are motivated to manipulate downwards (or hide some earnings) to obtain further favorable treatment by the program administrators.

History

School

  • Business and Economics

Department

  • Business

Published in

Journal of Financial Stability

Volume

51

Publisher

Elsevier BV

Version

AM (Accepted Manuscript)

Rights holder

© Elsevier

Publisher statement

This paper was accepted for publication in the journal Journal of Financial Stability and the definitive published version is available at https://doi.org/10.1016/j.jfs.2020.100785

Acceptance date

09/09/2020

Publication date

2020-09-16

Copyright date

2020

ISSN

1572-3089

Language

en

Depositor

Prof Hong Liu Deposit date: 23 September 2020

Article number

100785