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
Date Written: December 16, 2017
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: Suggested Citation