Deferred tax asset revaluations, costly information processing, and bank deposits: Evidence from the Tax Cuts and Jobs Act

03/04/2024 to 03/04/2024

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