We examine the impact of competition on bank earnings persistence by exploiting a natural experiment following interstate banking deregulation that increased bank competition. We find that bank earnings adjustment speed increases after their states implement the deregulation. This relationship is weakened, however, with the increase of bank's abilities to sustain earnings, as reflected in size, diversification, managerial efficiency and safety. We further find that the impact of compeititon on bank earnings adjustment speed is direct but not indirectly through the channel of earnings management.
- branching restrictions index
- earnings persistence
- earnings adjustment speed
- earnings management
Hung, C-HS. D., Jiang, Y., Liu, F. H., & Tu, H. (2018). Competition or manipulation? An empirical evidence of determinants of the earnings persistence of the U.S. banks. Journal of Banking and Finance, 88, 442-454. https://doi.org/10.1016/j.jbankfin.2018.01.010