Do Strict Regulators Increase the Transparency of the Banks?
44 Pages Posted: 21 Jun 2015 Last revised: 14 Dec 2018
Date Written: November 19, 2018
We investigate the role that regulatory strictness plays on the enforcement of financial reporting transparency in the U.S. banking industry. Using a novel measure of regulatory strictness in the enforcement of capital adequacy, we show that strict regulators are more likely to enforce restatements of banks’ call reports. Further, we find that the effect of regulatory strictness on accounting enforcement is strongest in periods leading up to economic downturns and for banks with riskier asset portfolios. Overall, the results from our study indicate that regulatory oversight plays an important role in enforcing financial reporting transparency, particularly in periods leading up to economic crises. We interpret this evidence as inconsistent with the idea that strict bank regulators put significant weight on concerns about the potential destabilizing effects of accounting transparency.
Keywords: Banking, Accounting Transparency, Regulatory Forbearance
JEL Classification: G01, G21, G28, M41
Suggested Citation: Suggested Citation