The (Earnings) Management of Deposit Growth

59 Pages Posted: 20 Oct 2022

See all articles by Javier Gómez Biscarri

Javier Gómez Biscarri

Universitat Pompeu Fabra; Barcelona Graduate School of Economics (Barcelona GSE)

Florencio Lopez-de-Silanes

SKEMA Business School; National Bureau of Economic Research (NBER)

Germán López-Espinosa

School of Economics - University of Navarra and IESE Business School

Date Written: October 17, 2022

Abstract

Previous work has analyzed the disciplinary role of equity and debt markets on banks and how banks use of accounting discretion to try to reduce this discipline. In this study, we put together data for all U.S. private banks to show that deposit growth is an additional motivation for banks to use accounting discretion. Our results also show that the exercising of accounting discretion is effective; in normal times, banks using more discretion obtain 1%-2% higher ex-post quarterly deposit growth rates than banks using less discretion. This difference reaches 2%-5% in periods with high levels of local instability. These figures are economically significant when compared to the 3% sample-wide average quarterly deposit growth rate. Our findings imply that accounting discretion can help control depositor reactions, but may also reduce the effectiveness of automatic market stabilizers in the financial system.

Keywords: earnings management, deposit growth, private banks.

JEL Classification: M43, G21.

Suggested Citation

Gómez Biscarri, Javier and Lopez-de-Silanes, Florencio and López-Espinosa, Germán, The (Earnings) Management of Deposit Growth (October 17, 2022). Available at SSRN: https://ssrn.com/abstract=4250189 or http://dx.doi.org/10.2139/ssrn.4250189

Javier Gómez Biscarri

Universitat Pompeu Fabra ( email )

Ramon Trias Fargas, 25-27
Barcelona, E-08005
Spain

Barcelona Graduate School of Economics (Barcelona GSE) ( email )

Ramon Trias Fargas, 25-27
Barcelona, Barcelona 08005
Spain

Florencio Lopez-de-Silanes (Contact Author)

SKEMA Business School ( email )

Avenue Willy Brandt, Euralille
Lille, 59777
France

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Germán López-Espinosa

School of Economics - University of Navarra and IESE Business School ( email )

Navarra
Spain
+34 948425600 (Phone)
+34 948425626 (Fax)

HOME PAGE: http://https://sites.google.com/site/germanlopezespinosa/

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
62
Abstract Views
478
Rank
720,043
PlumX Metrics