Regulation, Supervisión and Accounting Conservatism in Banks

31 Pages Posted: 25 Nov 2015

See all articles by Inmaculada Diaz-Sanchez

Inmaculada Diaz-Sanchez

University of Murcia

Manuel Illueca Muñoz

Universitat Jaume I

Isabel Martinez-Conesa

University of Murcia - Faculty of Business and Economics

Date Written: November 24, 2015

Abstract

The main purpose of this article is to evaluate the effects of the three pillars of Basel II, i.e. bank regulation, supervision and market discipline, on the timeliness of loan loss provisioning by banks. In particular, we analyze explicitly how regulatory and supervisory regimes interact with the market discipline measures, such as listing status, ownership and market concentration. Using a sample of 14,651 bank-year observations covering 54 countries over the period 1997-2009, we provide empirical evidence suggesting that a) the stringency of the regulatory and supervisory regimes is positively associated with accounting conservatism; b) unlisted banks and commercial banks are more conservative than listed entities and savings banks, respectively; and c) banks operating in more concentrated markets exhibit a lower degree of timeliness in loan loss recognition. In addition, our results suggest that strong capital requirements mitigate the effect of market concentration and governance on accounting conservatism, whereas strict regulatory regimes tend to reinforce the effect of both variables on early loan loss recognition.

Keywords: banking regulation, accounting conservatism, loan loss provision, market discipline, Basel II

JEL Classification: E510, E580, E590, M48

Suggested Citation

Diaz-Sanchez, Inmaculada and Illueca Muñoz, Manuel and Martinez-Conesa, Isabel, Regulation, Supervisión and Accounting Conservatism in Banks (November 24, 2015). Available at SSRN: https://ssrn.com/abstract=2695121 or http://dx.doi.org/10.2139/ssrn.2695121

Inmaculada Diaz-Sanchez

University of Murcia ( email )

Avda Teniente Flomesta, 5
Murcia, Murcia 30100
Spain

Manuel Illueca Muñoz

Universitat Jaume I ( email )

Dep. Finance and Accounting
Campus del Riu Sec
Castellón de la Plana, E-12071
Spain
34964387135 (Phone)

Isabel Martinez-Conesa (Contact Author)

University of Murcia - Faculty of Business and Economics ( email )

Spain

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