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The federal deposit insurance corporation improvement act, bank internal controls and financial reporting quality

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  • LaFond, Ryan
  • You, Haifeng

Abstract

Altamuro and Beatty (2009) examine financial reporting quality before and after the Federal Deposit Insurance Corporation Improvement Act (FDICIA). They document increases in the validity of the loan-loss provision, earnings persistence, predictability of future cash flows and reductions in benchmark-beating for banks complying with FDIC's internal control regulations relative to non-complying banks. Our discussion focuses on Altamuro and Beatty's interpretation of the results, specifically that the internal control provision of FDICIA improved financial reporting quality. In this paper, we provide a brief overview of FDICIA in an attempt to assess the importance of FDIC's internal control regulations. We then review the findings of other studies on internal control regulations with the goal of evaluating what new insights we gain from Altamuro and Beatty. Next, we report new evidence relating to the sub-groups driving the changes in financial reporting quality surrounding the FDICIA. Finally, we discuss the results in the context of the current financial crisis and suggest avenues for future research.

Suggested Citation

  • LaFond, Ryan & You, Haifeng, 2010. "The federal deposit insurance corporation improvement act, bank internal controls and financial reporting quality," Journal of Accounting and Economics, Elsevier, vol. 49(1-2), pages 75-83, February.
  • Handle: RePEc:eee:jaecon:v:49:y:2010:i:1-2:p:75-83
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    References listed on IDEAS

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    1. George J. Benston & George G. Kaufman, 1997. "FDICIA after five years: a review and evaluation," Working Paper Series, Issues in Financial Regulation WP-97-01, Federal Reserve Bank of Chicago, revised 1997.
    2. Hollis Ashbaugh‐Skaife & Daniel W. Collins & William R. Kinney Jr & Ryan Lafond, 2009. "The Effect of SOX Internal Control Deficiencies on Firm Risk and Cost of Equity," Journal of Accounting Research, Wiley Blackwell, vol. 47(1), pages 1-43, March.
    3. George J. Benston & George G. Kaufman, 1997. "FDICIA after Five Years," Journal of Economic Perspectives, American Economic Association, vol. 11(3), pages 139-158, Summer.
    4. Doyle, Jeffrey & Ge, Weili & McVay, Sarah, 2007. "Determinants of weaknesses in internal control over financial reporting," Journal of Accounting and Economics, Elsevier, vol. 44(1-2), pages 193-223, September.
    5. Ashbaugh-Skaife, Hollis & Collins, Daniel W. & Kinney Jr., William R., 2007. "The discovery and reporting of internal control deficiencies prior to SOX-mandated audits," Journal of Accounting and Economics, Elsevier, vol. 44(1-2), pages 166-192, September.
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    Cited by:

    1. repec:eee:pacfin:v:51:y:2018:i:c:p:75-94 is not listed on IDEAS
    2. repec:pal:jbkreg:v:20:y:2019:i:3:d:10.1057_s41261-018-0091-2 is not listed on IDEAS
    3. repec:eee:jbfina:v:97:y:2018:i:c:p:297-317 is not listed on IDEAS
    4. Ken B. Cyree, 2016. "The Effects Of Regulatory Compliance For Small Banks Around Crisis-Based Regulation," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 39(3), pages 215-246, September.

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