Accounting Restatements and Bank Liquidity Creation

97 Pages Posted: 28 Apr 2021

See all articles by Wei Wang

Wei Wang

Temple University - Department of Accounting

Date Written: April 27, 2021


Banks play a central role in creating liquidity for the economy by financing illiquid assets with liquid liabilities. This paper examines the effect of accounting restatements on bank liquidity creation. Using a difference-in-differences research design, I show that restatements are associated with a significant reduction in liquidity creation. This effect derives mainly from a shift in banks’ asset composition away from illiquid assets and toward liquid assets. Further analysis reveals that restatements affect liquidity creation through supervisory enforcement actions and unravelling of risk exposures accumulated in the misreporting period. Government deposit insurance blunts the effect of an information asymmetry channel.

Suggested Citation

Wang, Wei, Accounting Restatements and Bank Liquidity Creation (April 27, 2021). Available at SSRN: or

Wei Wang (Contact Author)

Temple University - Department of Accounting ( email )

Alter Hall 450
1801 Liacouras Walk
Philadelphia, PA 19122
United States

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