When Myopic Managers Must Mark to Market

51 Pages Posted: 12 Feb 2019 Last revised: 28 Oct 2020

See all articles by Adam C. Kolasinski

Adam C. Kolasinski

Texas A&M University - Department of Finance

Nan Yang

Hong Kong Polytechnic University - School of Accounting and Finance

Date Written: October 23, 2020

Abstract

While prior research suggests strict, fair-value-based securities accounting rules cause banks to sell securities into negative liquidity shocks, a value-destroying behavior called "liquidity feedback trading," the mechanism is uncertain. We find the sooner CEOs are permitted to sell their stock, the more prone are their banks to feedback trading. Furthermore, the sooner CEOs can sell, the more positive their banks' stock price reaction to news of accounting rule relaxation. We conclude incentives for excessive managerial short-term focus are a mechanism by which stricter accounting rules cause feedback trading. We find no evidence regulatory compliance concerns play a role.

Keywords: Financial Crisis, Banking, Bank Liquidity Provision, CEO Incentives, CEO Pay Duration, Capital Regulation, Real Earnings Management, Other-Than-Temporary Impairments

JEL Classification: G21, G28, G34, G38, M41, M43, M44

Suggested Citation

Kolasinski, Adam C. and Yang, Nan, When Myopic Managers Must Mark to Market (October 23, 2020). Available at SSRN: https://ssrn.com/abstract=3327659 or http://dx.doi.org/10.2139/ssrn.3327659

Adam C. Kolasinski (Contact Author)

Texas A&M University - Department of Finance ( email )

360 Wehner
College Station, TX 77843-4218
United States

Nan Yang

Hong Kong Polytechnic University - School of Accounting and Finance ( email )

Hung Hom
Kowloon
Hong Kong

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