Watch out for bailout: TARP and bank earnings management

Yaoyao Fan, Yichu Huang, Yuxiang Jiang, Frank Hong Liu*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

9 Citations (Scopus)


We study the impact of the recent government bailout, called Trouble Asset Relief Program (TARP), on bank accounting quality. By adopting a difference-in-difference (DID) method, we find a significantly positive impact of TARP on earnings management of recipient banks, compared with their non-recipient peers. Further, we observe that TARP-recipient banks engage more in earnings-decreasing manipulation rather than earnings-increasing manipulation. This behavior is more obvious for those banks that voluntarily request for TARP funds. Also, participant banks change their accounting strategy to manipulate earnings upwards after TARP funds are paid back. Our findings confirm our hypothesis that TARP-recipient banks are motivated to manipulate downwards (or hide some earnings) to obtain further favorable treatment by the program administrators.

Original languageEnglish
Article number100785
JournalJournal of Financial Stability
Publication statusPublished - Dec 2020


  • Bank earnings management
  • Government bailout
  • TARP


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