Investment Opportunity Sets, Accounting-Based Regulatory Contracts, and Accounting Discretion
Posted: 27 Jun 2000
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.
Note: This is a description of the paper and not the actual abstract.
JEL Classification: G12, M20, M41, M43, G28, G32, G35
Suggested Citation: Suggested Citation