Watch out for bailout: TARP and bank earnings management
journal contributionposted on 2020-09-28, 13:33 authored 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.
- Business and Economics
Published inJournal of Financial Stability
- AM (Accepted Manuscript)
Rights holder© Elsevier
Publisher statementThis 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