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Bank financial reporting opacity and regulatory intervention

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  • John Gallemore

    (University of North Carolina)

Abstract

I study the association between bank financial reporting opacity, measured by delayed expected loan loss recognition, and the intervention decisions made by bank regulators. Examining U.S. commercial banks during the 2007–09 financial crisis, I find that delayed expected loan loss recognition is negatively associated with the likelihood of regulatory intervention (measured by either severe enforcement action or closure). This result is robust to using various specifications and research designs. In additional analyses, I find evidence suggesting that this association is driven by regulators exploiting financial reporting opacity to practice forbearance. My findings contribute to the extant literature on bank opacity, regulatory forbearance, and the consequences of loan loss provisioning by suggesting that delayed expected loan loss recognition affects regulatory intervention decisions.

Suggested Citation

  • John Gallemore, 2023. "Bank financial reporting opacity and regulatory intervention," Review of Accounting Studies, Springer, vol. 28(3), pages 1765-1810, September.
    • Handle: RePEc:spr:reaccs:v:28:y:2023:i:3:d:10.1007_s11142-022-09674-4
    DOI: 10.1007/s11142-022-09674-4
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    More about this item

    Keywords

    Regulatory intervention; Bank closure; Enforcement actions; Forbearance; Loan loss provisioning; Banking crises;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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