The Timeliness of Accounting Write-Downs by U.S. Financial Institutions During the Financial Crisis of 2007-2008

Journal of Accounting Research, Forthcoming

Posted: 19 Oct 2009 Last revised: 21 Apr 2011

See all articles by Dushyantkumar Vyas

Dushyantkumar Vyas

University of Toronto - Rotman School of Management; University of Toronto at Mississauga

Date Written: December 6, 2010

Abstract

I examine the timeliness of write-downs taken by U.S. financial institutions during the financial crisis of 2007–2008. The timeliness of write-downs is measured by benchmarking the quarterly accounting write-down schedule with the devaluation schedule implied by exposure-specific credit indices such as the ABX. The results show that the accounting write-downs are less timely than the devaluations implied by credit indices. In a cross-sectional analysis of the determinants of the timeliness of write-downs, I document that corporate governance quality, regulatory investigations, and litigation pressure are positively related to the timeliness of write-downs, whereas the write-downs by firms with higher financial leverage, tighter regulatory constraints, and more complex exposures are less timely. I control for numerous exposure-specific characteristics and document that less risky exposures and exposures that were affected later during the financial crisis were written down later. Regarding the consequences of timeliness, I find that the exposure to risky assets is reflected faster in stock returns for firms with timelier write-downs.

Keywords: transparency, write-downs, timeliness, subprime, financial crisis, credit crisis

JEL Classification: G00, G20, G30

Suggested Citation

Vyas, Dushyantkumar, The Timeliness of Accounting Write-Downs by U.S. Financial Institutions During the Financial Crisis of 2007-2008 (December 6, 2010). Journal of Accounting Research, Forthcoming, Available at SSRN: https://ssrn.com/abstract=1491017

Dushyantkumar Vyas (Contact Author)

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6 M5S1S4
Canada

University of Toronto at Mississauga ( email )

3359 Mississauga Rd N.
3205 William Davis Building
Mississauga, Ontario L5L 1C6
Canada

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