Accounting Seminar（2016-16）

Topic: The Transmission of Corporate Risk Culture:Evidence from Bank Acquisitions

Speaker: Thomas Bourveau, Hong Kong University of Science and Technology

Time: Wednesday, Nov.30, 10:00-11:30

Place: Room217, Guanghua Building 1

Abstract:

This paper examines the transmission of risk assessment practices related to future loan defaults in the banking industry. Using bank acquisitions as shocks in a difference-in- differences research design, we provide evidence that acquiring banking groups transfer their discretionary risk assessment practices to newly acquired banking subsidiaries. Specifically, we document an increase in the comovement between acquiring and target banks' loan loss provisions following the acquisition that is not explained by banks' underlying risk factors. We further perform additional tests to plausibly rule out reverse causality and selection concerns. Overall, our findings shed light on how discretionary risk assessment practices are transmitted, which is relevant to regulators trying to assess factors affecting the systemic risk of the banking industry.