16.04.2024

New publication in Management Science

How do depositors cope with complex accounting signals?

Riepes paper “DTAs, Costly Information Processing, and Bank Deposits” (with Ulf Mohrmann, NHH) is now available online at Management Science [https://doi.org/10.1287/mnsc.2022.03176 ].

The paper sheds light on how bank depositors react to accounting information, particularly in the context of the 2017 Tax Cuts and Jobs Act. Despite the availability of detailed income statements, depositors tend to rely on simplified measures like net income due to high information processing costs. Unintuitive accounting treatments can lead to unwarranted withdrawals of deposits, even when the underlying risk profile of banks remains unchanged. Banks react to the withdrawals of deposits by granting fewer loans. The study highlights the importance of understanding information processing costs in deciphering depositors' reactions to financial information and suggests potential implications for bank transparency and financial reporting practices

The Tübingen-based Werner Diez Foundation kindly supported this Open Access publication.