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Activity Strategies, Information Asymmetry, and Bank Opacity

Dung Tran (), M. Kabir Hassan () and Reza Houston

No 2018-WP-04, NFI Working Papers from Indiana State University, Scott College of Business, Networks Financial Institute

Abstract: Using a large panel of US bank holding companies from 2001 to 2015, we investigate the association between functional diversification and bank earnings management. We document a positive relationship between bank earnings management and bank diversification. Our findings are consistent with the hypothesis that diversification increases the asymmetric information of banks, leading to greater discretionary power by bank managers. This effect is most prevalent in smaller banks and non-dividend paying banks. The impact of diversification on earnings management is less pronounced during the crisis. Our study is of interest to regulators and other stakeholders who examine factors which affect behavior of bank managers.

Keywords: bank earnings management; opacity; activity strategies; diversification; information asymmetry (search for similar items in EconPapers)
JEL-codes: G21 G28 G34 G38 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ban and nep-cfn
Date: 2018-07
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