YI-CHUN CHEN 陳怡君
Financial Intermediaries; Disclosure Regulations; Corporate Social Responsibility
“Economic Consequences of Mandatory Bail-in”
I study how expectations of future bail-in, a bank resolution mechanism that alleviates undercapitalization by converting debt into equity, affect ex-ante bank risk-taking. Exploiting the European Union’s mandatory adoption of the bail-in provisions, I find negative equity market reactions and positive creditor market reactions to the adoption. I also find a decrease in risk-taking following the adoption, using a difference-in-differences design. Analyses conditional on supervisory restructuring power and bank transparency suggest that shareholders take less risk to retain their residual control rights. These results suggest that bail-ins lead to ex-ante risk reduction and a wealth transfer from shareholders to creditors.
“Uneven Regulatory Playing Field and Bank Transparency Abroad” with Tai-Yuan Chen and Mingyi Hung
− Revise & Resubmit at Journal of International Business Studies
Motivated by international business research on institutional arbitrage and headquarters-subsidiary relationships, we examine the effect of regulatory distance on multinational banks’ (MNBs) reporting practices in the host countries. Using an international sample of foreign subsidiary banks in 46 host countries from 49 home countries, we find that bank transparency declines when the home countries have tighter activity restrictions than the host countries, and less transparent banks are more likely to fail during financial crises. Our results are robust to difference-in-differences designs that take advantage of banking reforms and cross-border acquisitions. Additional analyses conditional on parent-bank capital ratios and host-country supervisory power support the debt-equity agency conflict view that MNBs use opaque reporting to conceal their risk-shifting behavior from external monitoring. Our findings provide new insights that cross-country regulatory inconsistency exerts negative externalities on financial reporting transparency and stability abroad.
“Do Depositors Respond to Banks’ Social Performance? ” with Mingyi Hung and Lynn Wang
− Revise & Resubmit at The Accounting Review
− Previously titled “Nonfinancial Disclosure and Deposit Flows"
We study whether and how banks’ social performance affects depositors, who hold demandable debt with pervasive government protection and contribute to the majority of bank funding capital. Exploiting the regulatory releases of bank performance ratings for community development and a difference-in-differences design, we find a decline in deposit growth following rating downgrades but no change following rating upgrades. In addition, deposits that are impacted by rating downgrades migrate to nearby banks with high social performance. Further analyses find that the results hold similarly among insured and uninsured deposits and are primarily driven by banks with opaque financial reporting and with a large proportion of deposits from high-trust and pro-social counties. Overall, we contribute to the literature by documenting the importance of nonfinancial performance to non-shareholder stakeholders and providing implications for bank stability.
“Bank Management Guidance” with Yang Wang, K.C. John Wei, and Qi Wu
Using management forecasts from 1995 to 2018, we find that relative to nonfinancial firms, banks’ management forecasts are more specific, with longer horizons, more optimistic than analyst forecasts, and more positively biased than realized earnings. In addition, banks are more likely to issue forecasts when they have asset-side liquidity shortage, stable liability-side funding sources, and low protection through deposit insurance and government guarantee. We further find that management forecasts lead to an increase in systemic risk, and the results are robust to the matched sample difference-in-differences design and instrumental variable analysis. Additional evidence of securities investment similarity and deposit migration supports the hypothesis that management forecasts increase cross-bank contagion through bank correlated risk-taking and depositor coordination. Overall, our findings shed new insights on the externalities of management forecasts on financial stability and provide implications for the design of banking sector’s disclosure regulations.
“The Effect of Mandatory CSR Disclosure on Firm Profitability and Social Externalities: Evidence from China” with Mingyi Hung and Yongxiang Wang. Journal of Accounting and Economics, 2018, Vol. 65, 169–190.
− Most downloaded article from Journal of Accounting and Economics, 2018-2020
− Most cited article from Journal of Accounting and Economics, 2020