Does Distance Impede Regulatory Monitoring? Evidence from the Banking Industry

Does political influence distort banking regulation? Evidence from the US

“…Prior research (e.g. Lim et al, 2016) provides evidence suggesting that indeed a bank's distance from a regulator's field office has an impact on regulatory monitoring; since distance can reflect the level of information asymmetry between the regulator and the bank. Taking that into consideration, we re-estimate our baseline model by controlling for this type of information asymmetry and find that our key variable of interest remains intact.…”

Institutional investors’ horizons and bank transparency

“…However, little is known about the determinants of bank transparency. A few studies have shown that factors such as competition (Burks et al., 2018; Jiang et al., 2016), geographic distance between banks and regulatory field offices (Lim et al., 2017) and board independence (Cornett et al., 2009) influence bank transparency. However, critical questions remain unanswered, including how the different monitoring incentives of institutional shareholders’ investment horizons affect bank transparency.…”

“…Second, unlike prior research, we study three dimensions of bank transparency: information asymmetry between managers and outsiders (disclosure quality), information asymmetry among equity investors (private information gathering) and use of private information intermediaries (auditor fees). Previous bank studies examine only one dimension of bank transparency, DLLP , as the main proxy for disclosure quality, and show that DLLP decreases with geographic distance between banks and regulatory field offices (Lim et al., 2017) and increases with competition (Burks et al., 2018; Jiang et al., 2016) and board independence (Cornett et al., 2009). Third, we contribute to the recent debate on whether greater bank transparency undermines bank stability by being the first to document that the effect of bank transparency on bank stability is conditional on the institutional investor horizon.…”