Accounting Papers

Document Type

Journal Article

Date of this Version

2-2010

Publication Source

Journal of Accounting and Economics

Volume

49

Issue

1-2

Start Page

58

Last Page

74

DOI

10.1016/j.jacceco.2009.07.002

Abstract

Internal control regulation effectiveness remains controversial given the recent financial crisis. To address this issue we examine the financial reporting effects of the Federal Depository Insurance Corporation Improvement Act (FDICIA) internal control provisions. Exemptions from these provisions for banks with assets under $500 million and for non-US banks provides two unaffected control samples. Our difference-in-differences method suggests that FDICIA-mandated internal control requirements increased loan-loss provision validity, earnings persistence and cash-flow predictability and reduced benchmark-beating and accounting conservatism for affected versus unaffected banks. More pronounced effects in interim versus fourth quarters suggest that greater auditor presence substitutes for internal control regulation.

Copyright/Permission Statement

© 2010. This manuscript version is made available under the CC-BY-NC-ND 4.0 license http://creativecommons.org/licenses/by-nc-nd/4.0/

Keywords

internal controls, financial reporting quality, FDICIA, loan-loss provision, reporting discretion

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Date Posted: 27 November 2017

This document has been peer reviewed.