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Cambridge Endowment for Research in Finance (CERF)

 

Amir Amel-Zadeh

Title of research: Earnings Management and Bank Capital

This project considers the role of earnings management in generating incentives for financial institutions to carry risk on their balance sheet. The role of mark-to-market accounting and asset sales have been emphasized as a problem for restructuring loan portfolios and recapitalizing banks, but there is less investigation of this channel in creating balance sheet problems in the first place. In particular, we examine how market sentiment affects the valuation of different sources of bank earnings, interest income versus trading gains, over the economic cycle. If mark-to-market generated income attracts a higher market valuation during economic booms,  bank managers will, in the short run, be inclined to cater to market sentiment in their quest to maximize value thus holding more assets on their balance sheet that are susceptible to market movements.  We believe this hypothesis is underemphasized in the crisis and efforts at reform.

Research Update March 2016

Research Update September 2015

SSRN page

 

 

Latest news

PhD advisor and co-author of CERF post-doc Xinyu Hou wins Nobel Prize in Economics

11 October 2022

Philip H Dybvig from Washington University is (joint with Bernanke and Diamond) a recipient of this year’s Nobel Memorial Prize in Economic Sciences for his research on banks and financial crises. Prof. Dybvig is the former PhD advisor of Dr Xinyu Hou who is currently a post-doctoral researcher at the Cambridge Endowment...