Accounting regulations,enforcement, and stock price crash risk: Global evidence in the banking industry |
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| Institution: | 1. Centre for Responsible Banking & Finance, School of Management, University of St. Andrews, UK;2. Wuhan Technology and Business University and Hubei Business Service D&R Center, China;3. Michigan Technological University, USA;4. University of Massachusetts Dartmouth, USA;5. Zhongnan University of Economics and Law and Wuhan Technology and Business University, China;1. Accounting Department, Auckland University of Technology, New Zealand;2. Accounting Discipline Group, University of Technology Sydney, Australia;1. Department of Commerce, Finance and Shipping, Cyprus University of Technology, Lemesos, Cyprus;2. London Business School, London NW1 4SA, England, UK;3. Durham University Business School, Durham University, Mill Hill Lane, Durham DH1 3LB, England, UK;1. Aristotle University of Thessaloniki, Greece;2. University of Macedonia, Greece;1. National Taiwan University, Taiwan;2. University of Hawaii at Manoa, United States;1. Rotman School of Management, University of Toronto, Canada;2. J. Mack Robinson College of Business, Georgia State University, United States;1. Department of Accounting, College of Business, University of Texas at Arlington, TX, USA;2. Department of Accounting and Finance, School of Business Administration, Oakland University, MI, USA |
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| Abstract: | This study uses the banking industry as a unique testing setting to examine the impact of accounting and enforcement regulations on stock price crash risk. We find that stocks are less likely to crash in countries with stricter accounting regulations and enforcement standards. More importantly, we provide evidence that the impact of accounting regulations is more significant in countries with stricter enforcement standards, suggesting that enforcement mechanisms and accounting regulations are complementary. We find that the main channels for accounting regulations and enforcement standards to affect stock price crash risk are regulations that strengthen information disclosure and improve the effects of direct supervision and external auditors. Our findings are robust after we include more control variables, employ regional regulatory developments as instrumental variables, conduct change regressions, use alternative measures of enforcement, and estimate in various subsamples. Our study has policy implications for how to design accounting regulations and enforcement mechanisms in a more effective manner. |
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| Keywords: | Accounting regulations Industry-specific enforcement standards Stock price crash risk Banking industry |
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