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Accounting quality in banking: The role of regulatory interventions

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  • Delis, Manthos D.
  • Hasan, Iftekhar
  • Iosifidi, Maria
  • Li, Lingxiang

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.

Suggested Citation

  • Delis, Manthos D. & Hasan, Iftekhar & Iosifidi, Maria & Li, Lingxiang, 2018. "Accounting quality in banking: The role of regulatory interventions," Journal of Banking & Finance, Elsevier, vol. 97(C), pages 297-317.
    • Handle: RePEc:eee:jbfina:v:97:y:2018:i:c:p:297-317
    DOI: 10.1016/j.jbankfin.2018.10.005
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    More about this item

    Keywords

    Banks’ accounting quality; Enforcement actions; Loan-loss provisioning; Earnings; Regulation and supervision;
    All these keywords.

    JEL classification:

    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General

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