Banks' Survival during the Financial Crisis: The Role of Regulatory Reporting Quality

57 Pages Posted: 22 Jul 2011 Last revised: 27 Jul 2016

Jeffrey Ng

Hong Kong Polytechnic University - School of Accounting and Finance

Tjomme O. Rusticus

University of Minnesota

Date Written: November 2, 2011

Abstract

We investigate the relation between the quality of bank regulatory reporting prior to and bank stability during the financial crisis that erupted in 2008. Using a large sample of private and public commercial banks in the United States and the incidence of accounting restatements as a proxy for the overall quality of the reporting system, we find that reporting quality is positively associated with stability. We show that lower reporting quality before the crisis is associated with higher non-performing loans and lower profitability at the onset of the crisis. We document that banks with lower reporting quality are more likely to experience regulatory intervention through enforcement actions and bank failures during the crisis. We also find some evidence that higher reporting quality is associated with more effective regulatory enforcement actions. We corroborate our findings using an alternative proxy that focuses on the quality of the loan loss provision. A key implication of our findings is that good regulatory reporting is important for the success of the banking system.

Keywords: Regulatory reporting quality, financial crisis, regulatory intervention, bank failure

JEL Classification: G21, G33, G38, M41

Suggested Citation

Ng, Jeffrey and Rusticus, Tjomme O., Banks' Survival during the Financial Crisis: The Role of Regulatory Reporting Quality (November 2, 2011). Singapore Management University School of Accountancy Research Paper No. 2. Available at SSRN: https://ssrn.com/abstract=1892481 or http://dx.doi.org/10.2139/ssrn.1892481

Jeffrey Ng

Hong Kong Polytechnic University - School of Accounting and Finance ( email )

Hung Hom
Kowloon
Hong Kong

Tjomme O. Rusticus (Contact Author)

University of Minnesota ( email )

Carlson School of Management
321 19th Avenue South, Room 3-122
Minneapolis, MN 55455
United States

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