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

Managerial Finance

Posted: 27 Jun 2000

See all articles by Malcolm McLelland

Malcolm McLelland

McLelland + Palazzi | Financial economics

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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

McLelland, Malcolm, Investment Opportunity Sets, Accounting-Based Regulatory Contracts, and Accounting Discretion. Managerial Finance, Available at SSRN:

Malcolm McLelland (Contact Author)

McLelland + Palazzi | Financial economics ( email )

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Sao Paulo, Sao Paulo 05427-020


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