Bad News Withholding and Stock Price Crash Risk of Banks

Taejin Jung; Natalie Kyung Won Kim; Young Jun Kim; Hyun Jong Na

doi:10.1111/ajfs.12279

Bad News Withholding and Stock Price Crash Risk of Banks

Taejin Jung
, Natalie Kyung Won Kim
, Young Jun Kim
, Hyun Jong Na

School of Business Administration

Seoul National University
Hankuk University of Foreign Studies
George Washington University

Research output: Contribution to journal › Article › peer-review

10 Scopus citations

Abstract

Using US banks’ quarterly data from 1995 to 2014, this study examines the mechanism by which delayed expected loss recognition (DELR) affects the stock price crash risk of banks. We first show that greater DELR is positively associated with a subsequent crash in stock price. We then find that this association is only present when bank managers have more discretion in concealing bad news, which is proxied by the high proportion of heterogeneous loans. These findings provide policy implications for bank regulators regarding the importance of specific loan types and time horizons when monitoring the accounting treatment of banks.

Original language	English
Pages (from-to)	777-807
Number of pages	31
Journal	Asia-Pacific Journal of Financial Studies
Volume	48
Issue number	6
DOIs	https://doi.org/10.1111/ajfs.12279
State	Published - 1 Dec 2019

Keywords

Bad news withholding
Banks
Delayed expected loss recognition
Loan loss provision
Stock price crash risk

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10.1111/ajfs.12279

Cite this

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title = "Bad News Withholding and Stock Price Crash Risk of Banks",

abstract = "Using US banks{\textquoteright} quarterly data from 1995 to 2014, this study examines the mechanism by which delayed expected loss recognition (DELR) affects the stock price crash risk of banks. We first show that greater DELR is positively associated with a subsequent crash in stock price. We then find that this association is only present when bank managers have more discretion in concealing bad news, which is proxied by the high proportion of heterogeneous loans. These findings provide policy implications for bank regulators regarding the importance of specific loan types and time horizons when monitoring the accounting treatment of banks.",

keywords = "Bad news withholding, Banks, Delayed expected loss recognition, Loan loss provision, Stock price crash risk",

author = "Taejin Jung and Kim, \{Natalie Kyung Won\} and Kim, \{Young Jun\} and Na, \{Hyun Jong\}",

note = "Publisher Copyright: {\textcopyright} 2019 Korean Securities Association",

year = "2019",

month = dec,

day = "1",

doi = "10.1111/ajfs.12279",

language = "English",

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T1 - Bad News Withholding and Stock Price Crash Risk of Banks

AU - Jung, Taejin

AU - Kim, Natalie Kyung Won

AU - Kim, Young Jun

AU - Na, Hyun Jong

PY - 2019/12/1

Y1 - 2019/12/1

N2 - Using US banks’ quarterly data from 1995 to 2014, this study examines the mechanism by which delayed expected loss recognition (DELR) affects the stock price crash risk of banks. We first show that greater DELR is positively associated with a subsequent crash in stock price. We then find that this association is only present when bank managers have more discretion in concealing bad news, which is proxied by the high proportion of heterogeneous loans. These findings provide policy implications for bank regulators regarding the importance of specific loan types and time horizons when monitoring the accounting treatment of banks.

AB - Using US banks’ quarterly data from 1995 to 2014, this study examines the mechanism by which delayed expected loss recognition (DELR) affects the stock price crash risk of banks. We first show that greater DELR is positively associated with a subsequent crash in stock price. We then find that this association is only present when bank managers have more discretion in concealing bad news, which is proxied by the high proportion of heterogeneous loans. These findings provide policy implications for bank regulators regarding the importance of specific loan types and time horizons when monitoring the accounting treatment of banks.

KW - Bad news withholding

KW - Banks

KW - Delayed expected loss recognition

KW - Loan loss provision

KW - Stock price crash risk

UR - https://www.scopus.com/pages/publications/85077370175

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DO - 10.1111/ajfs.12279

M3 - Article

AN - SCOPUS:85077370175

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VL - 48

SP - 777

EP - 807

JO - Asia-Pacific Journal of Financial Studies

JF - Asia-Pacific Journal of Financial Studies

IS - 6

ER -

Bad News Withholding and Stock Price Crash Risk of Banks

Abstract

Keywords

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