Accounting Restatements and Bank Liquidity Creation

Accounting Review, Forthcoming

Fox School of Business Research Paper

96 Pages Posted: 11 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: January 8, 2022

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 (January 8, 2022). Accounting Review, Forthcoming, Fox School of Business Research Paper , Available at SSRN: https://ssrn.com/abstract=4003752

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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