Incentive

Financial system

Enforcement

Computer security

Regulatory authority

Accounting

Economics

Transparency (behavior)

Market economy

Computer science

Asset (computer security)

Bank regulation

Business

Political science

Capital requirement

Monetary economics

Public administration

Finance

Regulatory reform

Financial regulation

Journal of Accounting Research

ABSTRACT 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.

Do Strict Regulators Increase the Transparency of Banks?