Go with the Wind? Bureau Chief (CBRC) Turnover and Strategic Disclosure of City Commercial Banks

GUO Feng1,2 LIU Chong3 ( 1 National School of Development, Peking University; 2 Shanghai Finance Institute ; 3 School of Securities and Futures, Southwestern University of Finance and Economics,)

 

Abstract:Accurate information on operation of banks is important for regulators to maintain financial stability and investorsto improve market efficiency. But banks may strategically disclosure information due to the existence of accounting discretion. Turnover of chief of CBRC causes a "responsibility free period", which can be used to identify the strategic disclosuresbehavior. Using the accounting information of more than 110 city commercial banks and the provincial banking bureau chief turnover informationbetween the year 2004-2013, we find thatthe non-performing loan ratio ofcity commercial banks is significantly higher during the turnover periods than that in other periods, while special mention loan ratio change in the opposite direction. Further regressions also found no increase of bank risk assets, raise of loan growth or deterioration of bank bankruptcy risk status (Z-Score) during the turnover periods. Using the bureau chief turnoveras a responsibility free period, banks release the hidden non-performing loans. Strategic Disclosure behavior of banks is verified.Our finding passes several robustness tests. Key Words:Financial Supervision, Official Turnover, City Commercial Banks, Accounting Discretion, Strategic Disclosures JEL Classification: G21, G28, R51