Financial Reporting and Operational Decisions in Response to Proposed Regulation: Evidence from Basel III

63 Pages Posted: 16 Nov 2013 Last revised: 23 Jul 2019

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: July 1, 2019

Abstract

We utilize the time period over which banking authorities discussed, adopted, and implemented Basel III to examine the financial reporting and operational decisions firms use to respond to proposed regulation. Our primary finding is that the banks affected by this proposal made strategic financial reporting changes and altered their business models prior to the regulation being enacted. Further, our results indicate a sequential response to the proposed regulation as these banks responded through the financial reporting channel prior to making the business model changes targeted by the regulation. Finally, and consistent with market discipline having a strong influence on bank behavior, we provide evidence that publicly traded banks were quicker to respond to the proposed regulation. Taken together, our findings provide new insight into whether, when, and how firms respond to proposed regulatory changes.

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., Financial Reporting and Operational Decisions in Response to Proposed Regulation: Evidence from Basel III (July 1, 2019). 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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