Accounting Restatements and Bank Liquidity Creation

96 Pages Posted: 28 Apr 2021 Last revised: 8 Jan 2022

See all articles by Wei Wang

Wei Wang

Temple University - Department of Accounting

Multiple version iconThere are 2 versions of this paper

Date Written: December 20, 2021

Abstract

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 trigger a significant reduction in liquidity creation. This effect derives mainly from banks shifting 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.

Keywords: bank liquidity creation; restatements; supervisory actions; deposit insurance; risk-taking

JEL Classification: G21, G28, M41, M48

Suggested Citation

Wang, Wei, Accounting Restatements and Bank Liquidity Creation (December 20, 2021). Available at SSRN: https://ssrn.com/abstract=3835263 or http://dx.doi.org/10.2139/ssrn.3835263

Wei Wang (Contact Author)

Temple University - Department of Accounting ( email )

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

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
274
Abstract Views
798
Rank
128,989
PlumX Metrics