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The Timeliness of Accounting Write-Downs by U.S. Financial Institutions During the Financial Crisis of 2007–2008


  • This paper is based on my dissertation at the University of Toronto. I thank the members of my dissertation committee: Jeffrey Callen (Co-chair), Gordon Richardson (Co-chair), Alan White, and Franco Wong. I also thank James Wahlen (the external examiner) and Douglas Skinner (the Editor). I am grateful to Gauri Bhat, Francesco Bova, Vincent Chen, Aiyesha Dey, Gus De Franco, Ole-Kristian Hope, Bin Ke, Mo Khan, Mark Kohlbeck, Stephannie Larocque, Alastair Lawrence, Hai Lu, Matt Lyle, Hamed Mahmudi, Miguel Minutti, Reynolde Pereira, Stephen Ryan, Jack Stecher, Florin Vasvari, Regina Wittenberg-Moerman, Baohua Xin, Jerry Zimmerman, and workshop participants at the University of British Columbia, Carnegie Mellon University, University of Chicago, Columbia University, University of Florida, London Business School, University of Missouri, University of Minnesota, Purdue University, Penn State University, McGill University, McMaster University, University of Rochester, Southern Methodist University, Temple University, University of Toronto, Washington University, University of Western Ontario, the Financial Accounting and Reporting Section meeting (2010), and the Canadian Academic Accounting Association meeting (2010) for their helpful suggestions.


I examine the timeliness of write-downs taken by U.S. financial institutions during the financial crisis of 2007–2008. The timeliness of write-downs is measured by benchmarking the quarterly accounting write-down schedule with the devaluation schedule implied by exposure-specific credit indices such as the ABX. The results show that the accounting write-downs are less timely than the devaluations implied by credit indices. In a cross-sectional analysis of the determinants of the timeliness of write-downs, I document that corporate governance quality, regulatory investigations, and litigation pressure are positively related to the timeliness of write-downs, whereas the write-downs by firms with higher financial leverage, tighter regulatory constraints, and more complex exposures are less timely. I control for numerous exposure-specific characteristics and document that less risky exposures and exposures that were affected later during the financial crisis were written down later. Regarding the consequences of timeliness, I find that the exposure to risky assets is reflected faster in stock returns for firms with timelier write-downs.