TY - JOUR
T1 - Accounting regulations, enforcement, and stock price crash risk
T2 - global evidence in the banking industry
AU - Abedifar, Pejman
AU - Li, Ming
AU - Johnson, Dean
AU - Song, Liang
AU - Xing, Saipeng
N1 - This research was supported by a Summer Research Fellowship Program grant from the Office of the Provost at the University of Massachusetts Dartmouth, United States.
PY - 2019/12
Y1 - 2019/12
N2 - 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.
AB - 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.
KW - Accounting regulations
KW - Industry-specific enforcement standards
KW - Stock price crash risk
KW - Banking industry
U2 - 10.1016/j.jcae.2019.100164
DO - 10.1016/j.jcae.2019.100164
M3 - Article
SN - 1815-5669
VL - 15
JO - Journal of Contemporary Accounting & Economics
JF - Journal of Contemporary Accounting & Economics
IS - 3
M1 - 100164
ER -