TARP full version 07.09.2020 full paper to submit final.pdf (603.51 kB)
Download fileWatch out for bailout: TARP and bank earnings management
journal contribution
posted on 2020-09-28, 13:33 authored by Yaoyao Fan, Yichu Huang, Yuxiang Jiang, Hong LiuHong LiuWe 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.
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