Discretions over Security Investments in U.S. Banking Industry.

详细信息   

• 作者：Zhou ; Chunquan.
• 学历：Doctor
• 年：2011
• 关键词：Bank holding companies ; debt security investments
• 导师：Wu, Woody Y. W.,eadvisorYoung, Danqing,eadvisor
• 毕业院校：The Chinese University of Hong Kong
• ISBN：9781267258823
• CBH：3504689
• Country：China
• 语种：English
• FileSize：6388192
• Pages：149

文摘

This study examines U.S. banks investment behaviors as well as their financial reporting decisions on debt security investments. Particularly, I focus on two separate but related issues. The first issue examined is whether and how managerial incentives, influenced by the compensation contracts, affect managers investment decisions on debt securities in the U.S. banking industry. Using a sample composed of top 1,000 bank holding companies from 2001 to 2009, I find that managers, when their wealth is more sensitive to stock return volatility, tend to structure the firms debt investments with a higher proportion of credit risky securities. Provided that price of credit risky debt securities slumped during the recent financial crisis, that empirical evidence is consistent with the view that managerial compensation may induce excess risk-taking in the U.S. banking industry. The finding is relevant to both researchers and practitioners when they consider restructuring bankers compensation. Given the investment decisions made by the managers, the second issue studied in this thesis is the financial reporting decisions made by banks. To elaborate, banks have discretions to classify the debt securities into available-for-sale AFS) category vs. trading category depending on the purpose of the holding, while the classification decisions have very different impacts on firms income statement. Therefore, I study how accounting treatments of AFS and trading category and their different impacts on firms income statements affect reporting decisions. I find banks inclined to classify credit-riskier securities into AFS rather than into trading category, when banks have weak interest revenues, have high level of income-increasing discretional accruals, have concentrated assets, or have high level of risky assets. But I do not find classification decision is related to banks capital adequacy ratio. As long as one security is classified into AFS category, I document that banks strategically time the recognitions of gains and losses on AFS securities to smooth earnings, to meet earnings targets, to reduce regulatory costs, or to facilitate seasonal equity offering. These evidences collaborate with my previous results that banks prefer classifying credit risky securities into AFS rather than into trading category. Finally, I investigate market reactions to fair value changes on AFS securities and to trading revenues from trading assets. I show that trading revenues are more persistent, with greater value relevance, and drive more significant stock returns. This evidence indicates that artificially classifying securities which are held for trading purpose into AFS category may have negative impacts on firm values.