THE EFFECTS OF BIG BATHS ON BANK OPACITY
K. Stephen Haggard,
John S. Howe and
Andrew A. Lynch
Journal of Financial Research, 2017, vol. 40, issue 4, 433-454
Information asymmetry in the banking sector is important to regulators, analysts, and investors. We examine the change in the information environments of banks following large nonrecurring writeâ€ downs (baths) and find a reduction in information asymmetry in the three years following a bath. This result is conditional on the type of asset being written down. Loanâ€ related baths result in a permanent decrease in information asymmetry, but mergerâ€ related baths are associated with a transitory increase in information asymmetry. Conversely, baths not related to either loans or mergers result in increased opacity. Consistent with a permanent decrease in information asymmetry, we find an increase in earnings responsiveness in the three years following loanâ€ related baths.
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Persistent link: https://EconPapers.repec.org/RePEc:bla:jfnres:v:40:y:2017:i:4:p:433-454
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