The effects of bank regulators and external auditors on loan loss provisions

Nicoletti, Allison

doi:10.1016/j.jacceco.2018.05.003

Cited by 92 publications

(29 citation statements)

References 36 publications

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“…We address this concern by replacing our dependent variable with two alternative measures of transparency. First, we study whether regulatory strictness impacts loan loss provisions (e.g., Beck and Narayanamoorthy [], Nicoletti []) by estimating the following linear regression:

\begin{matrix} true \\ right {italicLLP}_{i t c r} & = & left α_{c} + φ_{t} + ψ_{r} + \sum_{t} β_{t} {Leniency}_{c r} \times {Qrt}_{t} \\ left + \sum_{s = - 4}^{4} C O_{i + s} + normalΓ X_{i t} + ε_{i t c r}, \end{matrix}

where LLP represents the quarterly loan loss provisions of banks scaled by total assets,

α_{c}

and

φ_{t}

are dummy variables that capture time‐varying and county‐level unobservable economic factors, and

ψ_{r}

controls for differences in the aggregate loan loss provisions between federal and state regulators.…”

Section: Robustnessmentioning

confidence: 99%

“…We develop a measure of call report amendments and show that stricter regulators are also associated with more call report amendments. Second, we document that banks overseen by strict regulators abnormally increase their provisions for loan losses in the early stages of the financial crisis (Nicoletti []), suggesting that these banks reveal potential loan losses in their portfolios in a timelier manner. Supplementing our analyses with these two additional measures helps to reinforce our inferences relating strict regulators to greater accounting transparency.…”

Section: Introductionmentioning

confidence: 99%

“…Other recent studies have looked at similar questions using quasi‐natural variation in bank regulatory enforcement (e.g., Hirtle, Kovner, and Plosser [], Gopalan, Kalda, and Manela [], Granja []). Nicoletti [] uses variation in regulatory strictness from Agarwal et al. [] to analyze the interplay of external private auditors and bank regulators in shaping financial reporting quality.…”

Section: Introductionmentioning

confidence: 99%

“…Using loan loss provision timeliness as the dependent variable, Nicoletti [] shows that over a different sample period, stricter regulators are also associated with more timely provisions.…”

mentioning

confidence: 99%

See 3 more Smart Citations

Do Strict Regulators Increase the Transparency of Banks?

Costello

Granja

Weber

2019

J of Accounting Research

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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 *

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\begin{matrix} true \\ right {italicLLP}_{i t c r} & = & left α_{c} + φ_{t} + ψ_{r} + \sum_{t} β_{t} {Leniency}_{c r} \times {Qrt}_{t} \\ left + \sum_{s = - 4}^{4} C O_{i + s} + normalΓ X_{i t} + ε_{i t c r}, \end{matrix}

where LLP represents the quarterly loan loss provisions of banks scaled by total assets,

α_{c}

and

φ_{t}

are dummy variables that capture time‐varying and county‐level unobservable economic factors, and

ψ_{r}

controls for differences in the aggregate loan loss provisions between federal and state regulators.…”

Section: Robustnessmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

mentioning

confidence: 99%

See 2 more Smart Citations

Do Strict Regulators Increase the Transparency of Banks?

Costello

Granja

Weber

2019

J of Accounting Research

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show abstract

“…The study conducted by Baylis et al (2017) studied the clauses in private lending agreements requiring auditors to assure lenders of borrowers' compliance with financial covenants and found that auditor covenant compliance assurance clauses are significantly associated with more complex contractual adjustments to net income, the extent of reliance on accounting information in the contract, intangibility of borrowers' assets, the number of lenders and loan maturity. Nicoletti (2018) documented that regulators and auditors differentially influence loan loss provisions timeliness.…”

Section: Discussionmentioning

confidence: 99%

Auditing Research: A Review of Recent Research Advances

Cuzdriorean¹

2018

EJEF

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We survey recent auditing research published in top 5 leading accounting journals over the last two years (2017-2018). We use the recent findings as a roadmap aiming to offer useful suggestions for future research. Finally, we urge more research on topics related to: implications of social challenges facing audits of complex estimates, implications of contrast effect for audit quality, assessing the effects of conservative bias in audit work, examining the factors affecting accounting firms` competencies.

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Do Investors Perceive Improvements in Fair Value Accounting for Investment Assets After PCAOB Inspections?

Dee,

Gunny,

Strawser

2024

J Corp Accounting Finance

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We examine whether fair value (FV) deficiencies highlighted in Public Company Accounting Oversight Board (PCAOB) inspection reports improve perceptions of the reporting quality of FV investment assets. Qualitative studies illustrate that subjective and complex estimates pose unique challenges to audit improvement. Using a market‐based measure of financial reporting quality (i.e., implied asset‐specific betas), we find a positive association between the intensity of FV‐deficient reports and perceived reporting quality of level 2 (but not level 3) FV investment assets and show that the association is stronger when audit office FV expertise is high. Consistent with improvements in disclosures, after a FV‐deficient report, we find FV footnotes become relatively more readable and include less cautionary language as level 2 holdings increase. Overall, our evidence suggests investors value PCAOB inspections regarding level 2 FV assets.

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The effects of bank regulators and external auditors on loan loss provisions

Cited by 92 publications

References 36 publications

Do Strict Regulators Increase the Transparency of Banks?

Do Strict Regulators Increase the Transparency of Banks?

Auditing Research: A Review of Recent Research Advances

Do Investors Perceive Improvements in Fair Value Accounting for Investment Assets After PCAOB Inspections?

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