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Accounting quality in banking: The role of regulatory interventions

Manthos Delis (elmanthos@hotmail.com), Iftekhar Hasan, Maria Iosifidi and Lingxiang Li

Journal of Banking & Finance, 2018, vol. 97, issue C, 297-317

Abstract: Using the full sample of U.S. banks and hand-collected data on enforcement actions over 2000–2014, we analyze the role of these interventions in promoting several aspects of accounting quality. We find that enforcement actions issued for both risk-related and accounting-related reasons lead to significant improvements in accounting quality. This improvement is consistently found for earnings smoothing, big-bath accounting, timely recognition of future loan losses, the association of loan loss provisions with future loan charge offs, loss avoidance, and cash flow predictability and earnings persistence. Most of the effects are somewhat more potent in the crisis period and survive in several sensitivity tests. Our findings highlight the imperative role of regulatory interventions in promoting bank accounting quality.

Keywords: Banks’ accounting quality; Enforcement actions; Loan-loss provisioning; Earnings; Regulation and supervision (search for similar items in EconPapers)
JEL-codes: D80 G20 G28 M41 (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:97:y:2018:i:c:p:297-317

DOI: 10.1016/j.jbankfin.2018.10.005

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