Accounting regulations, enforcement, and stock price crash risk: Global evidence in the banking industry

Pejman Abedifar, Ming Li, Dean Johnson, Liang Song and Saipeng Xing

Journal of Contemporary Accounting and Economics, 2019, vol. 15, issue 3

Abstract: This study uses the banking industry as a unique testing setting to examine the impact of accounting and enforcement regulations on stock price crash risk. We find that stocks are less likely to crash in countries with stricter accounting regulations and enforcement standards. More importantly, we provide evidence that the impact of accounting regulations is more significant in countries with stricter enforcement standards, suggesting that enforcement mechanisms and accounting regulations are complementary. We find that the main channels for accounting regulations and enforcement standards to affect stock price crash risk are regulations that strengthen information disclosure and improve the effects of direct supervision and external auditors. Our findings are robust after we include more control variables, employ regional regulatory developments as instrumental variables, conduct change regressions, use alternative measures of enforcement, and estimate in various subsamples. Our study has policy implications for how to design accounting regulations and enforcement mechanisms in a more effective manner.

Keywords: Accounting regulations; Industry-specific enforcement standards; Stock price crash risk; Banking industry (search for similar items in EconPapers)
JEL-codes: G21 M41 M48 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (13)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jocaae:v:15:y:2019:i:3:s1815566919301055

DOI: 10.1016/j.jcae.2019.100164

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Journal of Contemporary Accounting and Economics is currently edited by Agnes C.S. Cheng, P. Clarkson, F.A. Gul, Zoltan Matolcsy, Dan Simunic and Ben Srinidhi

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