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Bushman’s PhD Seminar Fall 2020
Banking, Debt and Transparency
Banks are a fundamental component of the financial infrastructure of an economy. They play a central role in the allocation of scarce capital to the economy and as important providers of liquidity. There is a large and growing accounting literature that studies the role that transparency plays in the banking sector. While in many respects banks are similar to non-financial firms, in other respects they are special. Banks are often posited to be more opaque than non-financial firms; the banking sector can expose an economy to systemic risk; and banks are highly regulated.
While the course will certainly consider unique aspects of banking and debt markets, there will a lot of ideas and concepts that have general application outside of banking. These include textual analysis, networks, regulation and enforcement, competition, the winner’s curse, quantile regression, liquidity risk, mixed data sampling, value at risk metrics and selection/matching issues.
Session Details
Session 1 Wednesday November 4th 12:00pm to 3:00pm, Zoom
Introduction to the banking literature
Papers for Class Discussion
Transparency, Accounting Discretion and Bank Stability, Robert Bushman, Economic Policy Review, Issue Aug, pp. 129-149, 2016.
Dang, Gorton, Holmström, and Ordoñez, 2017. Banks as Secret Keepers. American Economic Review, 107(4): 1005–1029. We will cover through page 1018.
Accounting discretion, loan loss provisioning, and discipline of Banks' risk-taking, Robert Bushman and Christopher Williams. Journal of Accounting and Economics 54 (2012) 1–18
Related Literature
Financial accounting in the banking industry: A review of the empirical literature, 2014. Beatty and Liao, JAE
Bushman and Smith, 2003. Transparency, Financial Accounting Information, and Corporate Governance. FRBNY Economic Policy Review / April 2003.
Should Banks’ Stress Test Results Be Disclosed? An Analysis of the Costs and Benefits. 2013. Itay Goldstein and Haresh Sapra. Foundations and Trends in Finance Vol. 8, No. 1 (2013) 1–54.
Flannery, Mark, 2001. The Faces of Market Discipline. Journal of Financial Services Research, 20: 107-119.
Session 2 Wednesday November 11th 12:00pm to 3:00pm, Zoom
Liquidity Risk, Transparency, Quantile Regression, Value at Risk, and Systemic Risk
Papers for Class Discussion (I will do a high level discussion of the Basu et al. and the Beatty and Liao papers)
Asset pricing with liquidity risk. Viral V.Acharya and Lasse Heje Pedersen. Journal of Financial Economics 77 (2005) 375–410. We will cover pages 375-385.
Lang, M., Maffett, M., 2011. Transparency and Liquidity Uncertainty in Crisis Periods. Journal of Accounting and Economics Vol. 52, pp. 101-125.
Delayed Expected Loss Recognition and the Risk Profile of Banks, with Chris Williams. Journal of Accounting Research, Volume 53, Issue 3, 511–553, June 2015
Basu, Vitanza, and Wang, Asymmetric Loan Loss Provision Models (August 25, 2020). Journal of Accounting & Economics (JAE).
Alternative Evidence and Views on Asymmetric Loan Loss Provisioning, 2020. Anne Beatty and Scott Liao
Important Background papers
Adrian, Tobias, and Markus K. Brunnermeier. “CoVaR”. American Economic Review 2016, 106(7): 1705–1741
Quantile Regression, 2001. Koenker and Hallock. Journal of Economic Perspectives—Volume 15, Number 4—Fall 2001—Pages 143–156
Related Literature
Bisias, Dimitrios and Flood, Mark D. and Lo, Andrew W. and Valavanis, Stavros, A Survey of Systemic Risk Analytics (January 11, 2012). U.S. Department of Treasury, Office of Financial Research No. 0001.
Lars Peter Hansen, 2013. "Challenges in Identifying and Measuring Systemic Risk," NBER Chapters, in: Risk Topography: Systemic Risk and Macro Modeling, pages 15-30, National Bureau of Economic Research, Inc.
Session 3 Wednesday November 25th 12:00pm to 3:00pm, Zoom
How does the competitive environment impact bank behavior?
Papers for Class Discussion
Threat of entry and the use of discretion in banks’ financial reporting, Rimmy Tomy. Journal of Accounting and Economics 67 (2019) 1–35.
Competition and voluntary disclosure: evidence from deregulation in the banking industry, Burks, Cuny, Joseph & Granja Review of Accounting Studies
Bank Competition: Measurement, Decision-Making and Risk-Taking, Bushman, Hendricks and Williams. Journal of Accounting Research Volume 54 Issue 3, June 2016: 777–826.
Important Background papers
Loughran, T., and B. McDonald, 2016. Textual analysis in accounting and finance: A survey. Journal of Accounting Research Vol. 54 No. 4
Boyd, J.H., and G. De Nicolo, 2005. The theory of bank risk-taking and competition revisited. Journal of Finance 60, 1329-43
Related Literature
Rice, T., and P. Strahan. 2010. Does credit competition affect small-firm finance? Journal of Finance 65: 861-889.
Li, F., Lundholm, R., and M. Minnis, 2013. A measure of competition based on 10-K filings. Journal of Accounting Research 51(2), 399-436.
Bank Competition and Financial Stability, Berger, Klapper & Turk-Ariss, 2009. Journal of Financial Services Research volume 35, 99–118.
Session 4 Wednesday December 2nd 12:00pm to 3:00pm, Zoom
Bank Regulation and Transparency
The effects of bank regulators and external auditors on loan loss provisions. Allison Nicoletti. Journal of Accounting and Economics 66 (2018) 244–265.
Do Strict Regulators Increase the Transparency of Banks? Costello, Granja and Weber. Journal of Accounting Research Vol. 57 No. 3 June 2019.
Bank CEO Materialism: Risk Controls, Culture and Tail Risk, with Rob Davidson, Aiyesha Dey and Abbie Smith. Journal of Accounting and Economics, 2018.
Related Literature
Acharya, Pedersen, Philippon, and Richardson, Measuring Systemic Risk. The Review of Financial Studies, Volume 30, Issue 1, January 2017, Pages 2–47
Ghosh, A.A., Jarva, H. and Ryan, S.G., 2019. Do bank regulation and supervision substitute for bank auditing? Working paper.
Granja, Joao and Leuz, Christian, 2019. The Death of a Regulator: Strict Supervision, Bank Lending and Business Activity. European Corporate Governance Institute (ECGI)
Rob Davidson, Aiyesha Dey and Abbie Smith. JFE 2013. Executives’ “Off-the-Job” Behavior, Corporate Culture, and Financial Reporting Risk.
Session 5 Wednesday December 9th 12:00pm to 3:00pm, Zoom
Networks and Syndicates
Papers for Class Discussion
Larcker, David F. and So, Eric C. and Wang, Charles C. Y., Boardroom Centrality and Firm Performance. 2013. Journal of Accounting & Economics (JAE), 55(2-3): 225-250
Houston, Joel F. and Lee, Jongsub and Suntheim, Felix, Social Networks in the Global Banking Sector. Journal of Accounting and Economics, 65, Issues 2–3, 2018: 237-269.
Engelberg, Joseph, Penjie Gao and Christopher Parsons, Friends with Money, Journal of Financial Economics (2012).
Background Reading
Related Literature
Cai, Eidam, Saunders, and Steffen. 2018. Syndication, Interconnectedness, and Systemic Risk. Journal of Financial Stability 34: 105–120.
Engelberg, Joseph, Penjie Gao and Christopher Parsons, 2013. The Price of a CEO’s Rolodex. The Review of Financial Studies / v 26 n 1 2013.
Fracassi, C., and G. Tate. 2012. External networking and internal firm governance. Journal of Finance 67(1): 153–194.
Session 6 Tuesday December 15th 12:00pm to 3:00pm, Zoom
Textual Similarity, Higher Order Transparency
Papers for Class Discussion
Text-Based Network Industries and Endogenous Product Differentiation, Hoberg & Phillips, Journal of Political Economy, 2016, 124 (5) 1423-1465.
Measuring Bank Comovement Transparency with Qualitative Accounting disclosures, 2020. Bushman, Chen and Williams
Hanley and Hoberg, 2019, Dynamic Interpretation of Emerging Systemic Risks. The Review of Financial Studies, Volume 32, Issue 12, 4543–4603.
Related Literature
Boyson, Nicole M. and Stahel, Christof W. and Stulz, Rene M., Hedge Fund Contagion and Liquidity Shocks, 2010. Journal of Finance, Vol. 55, No. 5, pp. 1789-1816.
Cohen, L., C. Malloy, and Q. Nguyen. 2020. Lazy Prices. Journal of Finance, Volume75, Issue3, 1371-1415.
Econometric Measures of Connectedness and Systemic Risk in the Finance and Insurance Sectors, Billio, Getmansky, Lo and Pelizzon, Journal of Financial Economics, 2012, 535-59.
Session 7 Friday December 18th 12:00pm to 3:00pm, Zoom
Bank Enforcement Actions, Disclosure, Lending Behavior
Papers for Class Discussion
The Lifecycle of a Bank Enforcement Action and its Impact on Minority Lending, with Anya Kleymenova and Rimmy Tomy.
Observing Enforcement: Evidence from Banking, Anya Kleymenova and Rimmy Tomy. October 2020.
Related Literature
Kielty, Patrick and Wang, Philip and Weng, Diana, Simplifying Complex Disclosures: Evidence from Disclosure Regulation in the Mortgage Markets (November 1, 2020). Available at SSRN: https://ssrn.com/abstract=3725912
Danisewicz, P., McGowan, D., Onali, E., & Schaeck, K. (2018). The real effects of banking supervision: Evidence from enforcement actions. Journal of Financial Intermediation, 35, 86-101.
Delis, M. D., Staikouras, P. K., & Tsoumas, C. (2016). Formal enforcement actions and bank behavior. Management Science, 63, 959-987.
Hirtle, B., Kovner, A., & Plosser, M. (2020). The impact of supervision on bank performance. The Journal of Finance, 75, 2765-2808.
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