Premium
Bad News Withholding and Stock Price Crash Risk of Banks
Author(s) -
Jung Taejin,
Kim Natalie Kyung Won,
Kim Young Jun,
Na Hyun Jong
Publication year - 2019
Publication title -
asia‐pacific journal of financial studies
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.375
H-Index - 15
eISSN - 2041-6156
pISSN - 2041-9945
DOI - 10.1111/ajfs.12279
Subject(s) - discretion , stock (firearms) , stock price , crash , business , loan , monetary economics , actuarial science , economics , finance , computer science , mechanical engineering , paleontology , series (stratigraphy) , political science , law , biology , programming language , engineering
Using US banks’ quarterly data from 1995 to 2014, this study examines the mechanism by which delayed expected loss recognition (DELR) affects the stock price crash risk of banks. We first show that greater DELR is positively associated with a subsequent crash in stock price. We then find that this association is only present when bank managers have more discretion in concealing bad news, which is proxied by the high proportion of heterogeneous loans. These findings provide policy implications for bank regulators regarding the importance of specific loan types and time horizons when monitoring the accounting treatment of banks.