Investment Opportunity Sets, Accounting-Based Regulatory Contracts, and Accounting Discretion

24 Pages Posted: 19 Jun 2000

See all articles by Malcolm McLelland

Malcolm McLelland

McLelland + Palazzi | Financial economics

Multiple version iconThere are 2 versions of this paper

Date Written: May 5, 2000

Abstract

This paper examines the relationship between accounting discretion and investment opportunity sets (IOSs) of regulated banks in the presence of accounting-based regulatory contracts. Specifically, the proposition that accounting discretion allows a bank to avoid constraints on its IOS resulting from risk-based regulatory capital requirements is examined. The conditions under which accounting discretion can influence a bank's IOS are explored and results suggest that, in general, accounting discretion has no effect on a bank's IOS, or on compliance with regulatory capital requirements, independent of its effect on dividends or other financing transactions.

JEL Classification: G21, G28, M41, M43

Suggested Citation

McLelland, Malcolm, Investment Opportunity Sets, Accounting-Based Regulatory Contracts, and Accounting Discretion (May 5, 2000). Available at SSRN: https://ssrn.com/abstract=229276 or http://dx.doi.org/10.2139/ssrn.229276

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McLelland + Palazzi | Financial economics ( email )

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