Government Guarantees and Banks’ Income Smoothing

We propose four channels through which government guarantees affect banks’ incentives to smooth income. Empirically, we exploit two complementary settings that represent plausible exogenous changes in guarantees: the increase implicit following creation of Eurozone and removal explicit granted Landesbanken. show increases (decreases) are associated with significant decreases (increases) income smoothing. Taken together, our results largely corroborate predominance a tail-risk channel, wherein reduce tail risk, thereby reducing managers’ engage