The Dark Side Of Market Transparency: Evidence From The Banks’ Stress Tests

This paper examines how transparency of the market influences the managerial incentives in the U.S. banking system. Using the regression discontinuity design in combination with difference-in-difference method, this paper establishes the negative causal impact of financial disclosure on managerial incentives and quality of financial reporting. In response to the recent financial crisis, regulators conduct bank stress tests to determine the vulnerability of financial institutions to adverse