Is Accounting Enforcement Related to Risk-Taking in the Banking Industry?
Posted: 20 Jul 2020 Last revised: 10 Aug 2020
Date Written: June 1, 2020
Using a sample of banks from 36 countries, we document that accounting enforcement is negatively related to bank risk-taking. We also provide evidence that accounting enforcement enhances bank stability during the crisis. In addition, we show that banks assume less risk through more conservative lending decisions and a reduction in complexity in jurisdictions with higher accounting enforcement. Our results show that formal institutions such as accounting enforcement are associated with bank financial decisions and risk-taking behavior.
Keywords: Accounting Enforcement, Bank Risk-taking, Bank Complexity, Bank Reporting Discretion.
JEL Classification: G21, G28, M41
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