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Bank accounting regulations, enforcement mechanisms, and financial statement informativeness: cross-country evidence

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  • Augustine Duru
  • Iftekhar Hasan
  • Liang Song
  • Yijiang Zhao

Abstract

We construct measures of accounting regulations and enforcement mechanisms that are specific to a country's banking industry. Using a sample of major banks in 37 economies, we find that the informativeness of banks’ financial statements, measured by the value relevance of earnings and common equity, is higher in countries with stricter bank accounting regulations and countries with stronger enforcement. These findings suggest that superior bank accounting and enforcement mechanisms enhance the informativeness of banks’ financial statements. In addition, we find that the effects of bank accounting regulations are more pronounced in countries with stronger enforcement in the banking industry, suggesting that enforcement is complementary to bank accounting regulations in achieving higher value relevance of financial statements. Our study has important policy implications for bank regulators.

Suggested Citation

  • Augustine Duru & Iftekhar Hasan & Liang Song & Yijiang Zhao, 2020. "Bank accounting regulations, enforcement mechanisms, and financial statement informativeness: cross-country evidence," Accounting and Business Research, Taylor & Francis Journals, vol. 50(3), pages 269-304, April.
    • Handle: RePEc:taf:acctbr:v:50:y:2020:i:3:p:269-304
    DOI: 10.1080/00014788.2017.1415801
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    Cited by:

    1. Wang, Kun Tracy & Liu, Simeng & Wu, Yue, 2021. "Corporate social activities and stock price crash risk in the banking industry: International evidence," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 74(C).

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