When and how do firms respond to proposed regulation? Evidence from Basel III

66 Pages Posted: 16 Nov 2013 Last revised: 18 Nov 2020

See all articles by Bradley E. Hendricks

Bradley E. Hendricks

University of North Carolina (UNC) at Chapel Hill - Kenan-Flagler Business School

Jed J. Neilson

Penn State University - Smeal College of Business

Catherine Shakespeare

University of Michigan - Stephen M. Ross School of Business

Christopher D. Williams

University of Michigan, Stephen M. Ross School of Business

Date Written: November 1, 2020

Abstract

We examine the period over which banking authorities discussed, adopted, and implemented Basel III to understand whether, when, and how firms respond to proposed regulation. We find evidence to suggest that the affected banks not only lobbied rule makers against it, but these banks also made strategic financial reporting changes and altered their business models prior to rule makers finalizing the regulation. Further, our results indicate a sequential response, with banks responding through strategic financial reporting prior to making the business model changes targeted by the regulatory proposal. These findings highlight the previously unexplored interplay among financial reporting choices, business model choices, and political choices in response to proposed regulation, and indicate that the appropriate date for an event study may be the regulation’s announcement date rather than its adoption or implementation dates.

Keywords: regulation, fair value accounting, Basel III, mortgage servicing, originate-to-distribute, capital management

JEL Classification: D21, G21, G28, M41

Suggested Citation

Hendricks, Bradley E. and Neilson, Jed J. and Shakespeare, Catherine and Williams, Christopher D., When and how do firms respond to proposed regulation? Evidence from Basel III (November 1, 2020). Ross School of Business Paper No. 1213, Available at SSRN: https://ssrn.com/abstract=2354618 or http://dx.doi.org/10.2139/ssrn.2354618

Bradley E. Hendricks (Contact Author)

University of North Carolina (UNC) at Chapel Hill - Kenan-Flagler Business School ( email )

McColl Building
Chapel Hill, NC 27599-3490
United States
(919) 962-3619 (Phone)

Jed J. Neilson

Penn State University - Smeal College of Business ( email )

376 Business Building
State College, PA PA 16802
United States

Catherine Shakespeare

University of Michigan - Stephen M. Ross School of Business ( email )

701 Tappan Street
Ann Arbor, MI MI 48109
United States

Christopher D. Williams

University of Michigan, Stephen M. Ross School of Business ( email )

701 Tappan Street
Ann Arbor, MI MI 48109
United States
(734)647-2842 (Phone)

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