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Activity Strategies, Information Asymmetry, and Bank Opacity

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  • Viet-Dung Tran
  • M. Kabir Hassan
  • Reza Houston

Abstract

Using a large panel of US bank holding companies from 2001 to 2015, we investigate the association between functional diversification and bank earnings management. We document a positive relationship between bank earnings management and bank diversification. Our findings are consistent with the hypothesis that diversification increases the asymmetric information of banks, leading to greater discretionary power by bank managers. This effect is most prevalent in smaller banks and non-dividend paying banks. The impact of diversification on earnings management is less pronounced during the crisis. Our study is of interest to regulators and other stakeholders who examine factors which affect behavior of bank managers.

Suggested Citation

  • Viet-Dung Tran & M. Kabir Hassan & Reza Houston, 2018. "Activity Strategies, Information Asymmetry, and Bank Opacity," NFI Working Papers 2018-WP-04, Indiana State University, Scott College of Business, Networks Financial Institute.
  • Handle: RePEc:nfi:nfiwps:2018-wp-04
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    8. Tran, Dung Viet & Houston, Reza, 2021. "The effects of policy uncertainty on bank loan loss provisions," Economic Modelling, Elsevier, vol. 102(C).
    9. Dung V. Tran & M. Kabir Hassan & Isabelle Girerd‐Potin & Pascal Louvet, 2020. "Activity Strategies, Agency Problems, And Bank Risk," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 43(3), pages 575-613, August.
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    More about this item

    Keywords

    bank earnings management; opacity; activity strategies; diversification; information asymmetry;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation

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