Abstract
In this paper, we investigate the role played by the organizational structure of bank holding companies in the earnings management of bank subsidiaries. Our results suggest that bank holding companies manage their subsidiaries to optimize the reporting outcome at the consolidated level. We find that parent characteristics explain the earnings management of subsidiaries over and above the characteristics of subsidiaries. We also find that subsidiary’s integration, the public status of bank holding companies and the distance between subsidiaries and headquarters explain the proclivity of bank subsidiaries to engage in earnings management. Our results yield important insights on the drivers of earnings management within bank holding companies and highlight the need for their integration in regulatory design.
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