Competition or Manipulation? An Empirical Evidence of Determinants of the Earnings Persistence of the U.S. Banks

38 Pages Posted: 28 Feb 2017 Last revised: 7 Feb 2018

See all articles by Chi-Hsiou Daniel Hung

Chi-Hsiou Daniel Hung

University of Glasgow - Adam Smith Business School

Yuxiang Jiang

GalaxyAsset management; East China University of Science and Technology (ECUST)

Hong Liu

Loughborough University - School of Business and Economics

Hong Tu

School of Finance,Nankai University

Date Written: December 16, 2017

Abstract

We examine the impact of competition on bank earnings persistence by exploiting a natural experiment following interstate banking deregulation that increased bank competition. We find that bank earnings adjustment speed increases after their states implement the deregulation. This relationship is weakened, however, with the increase of bank’s abilities to sustain earnings, as reflected in size, diversification, man- agerial efficiency and safety. We further find that the impact of compeititon on bank earnings adjustment speed is direct but not indirectly through the channel of earnings management.

Keywords: Competition; Branching Restrictions Index; Earnings persistence; Earnings adjustment speed, Earnings management

JEL Classification: G20, G21, G38

Suggested Citation

Hung, Chi-Hsiou Daniel and Jiang, Yuxiang and Liu, Hong and Tu, Hong, Competition or Manipulation? An Empirical Evidence of Determinants of the Earnings Persistence of the U.S. Banks (December 16, 2017). Journal of Banking and Finance, Vol. 88, No. 442-454, 2018, Available at SSRN: https://ssrn.com/abstract=2923118 or http://dx.doi.org/10.2139/ssrn.2923118

Chi-Hsiou Daniel Hung

University of Glasgow - Adam Smith Business School ( email )

Gilbert Scott Building
University of Glasgow
Glasgow, Scotland G12 8QQ
United Kingdom

Yuxiang Jiang (Contact Author)

GalaxyAsset management ( email )

shanghai
century avenue
shanghai, shanghai
China

East China University of Science and Technology (ECUST) ( email )

Shanghai
China

Hong Liu

Loughborough University - School of Business and Economics ( email )

Epinal Way
Leics LE11 3TU
Leicestershire
United Kingdom

Hong Tu

School of Finance,Nankai University ( email )

38 Tongyan Road, Jinnan District
Tianjin, Tianjin 300350
China

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