BANK WINDOW DRESSING - THEORY AND EVIDENCE

This study is the first to examine empirically the propensity of banks to engage in window dressing behavior. We found evidence of a systematic upward window dressing adjustment in bank assets on the last day of each quarter over the 1978-1986 per-iod. For the 1984-1986 period, there was also evidence of reversals of temporary window dressing behavior as assets returned to permanent (benchmark) levels after the quarter-end reporting date. Money market instruments such as Federal funds, repurchase agreements, Certificates of Deposit, and Euro-dollar deposits appeared to be important liability-side vehicles for upward window dressing.