Title

The Effects of Big Baths on Bank Opacity

Abstract

Information asymmetry in the banking sector is important to regulators, analysts, and investors. We examine the change in the information environments of banks following large nonrecurring write‐downs (baths) and find a reduction in information asymmetry in the three years following a bath. This result is conditional on the type of asset being written down. Loan‐related baths result in a permanent decrease in information asymmetry, but merger‐related baths are associated with a transitory increase in information asymmetry. Conversely, baths not related to either loans or mergers result in increased opacity. Consistent with a permanent decrease in information asymmetry, we find an increase in earnings responsiveness in the three years following loan‐related baths.

Document Type

Article

DOI

https://doi.org/10.1111/jfir.12130

Publication Date

2017

Journal Title

Journal of Financial Research

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