Accounting quality in banking : The role of regulatory interventions

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Title: Accounting quality in banking : The role of regulatory interventions
Author: Delis, Manthos D. ; Hasan, Iftekhar ; Iosifidi, Maria ; Li, Lingxiang
Series: Journal of Banking & Finance
Series volume: 97
Series number: December ; 2018
Year of publication: 2018
Publication date: 26.11.2018
Page range: 297-317
Publisher: Elsevier
Subject (yso): pankit; kirjanpito; laatu; sääntely
Keywords: valvonta
JEL: G20; G28; M41; D80
Other keywords: banks’ accounting quality; earnings enforcement actions; loan-loss provisioning; regulation and supervision
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.

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