How accounting and auditing systems can counteract risk-shifting of safety-nets in banking: Some international evidence

The impact of banking regulations on banks' cost and profit efficiency: Cross-country evidence

“…Barth et al (2001a) also confirm that greater regulatory restrictions on bank activities are associated with higher probability of suffering a major banking crisis, as well as lower banking sector efficiency. In contrast, Fernandez and Gonzalez (2005) find that stricter restrictions on bank activities are effective at reducing banking risk, although they argue that this is mitigated by higher information disclosure and auditing requirements. Lower restrictions on bank activities have also been associated with higher credit ratings (Pasiouras et al, 2006), although Pasiouras (2008) finds no significant association with technical efficiency.…”

“…The reduction in profit efficiency may be due to the fact that banks substitute 18 While these two approaches of supervision might reflect different attitudes towards the role of the authorities in monitoring banks, as Levine (2005) points out, they are not necessarily mutually exclusive, and countries could adopt regulations that enhance both the disclosure of accurate information and the creation of powerful supervisors. Under this combined approach, as argued by Fernandez and Gonzalez (2005), a greater quality of information provided by a system that enhances private monitoring through accounting and auditing requirements might boost supervisors' abilities to intervene in managerial decisions in the right way and at the right time.…”

“…At the international level, Barth et al (2004a) investigate the effect of a broad range of regulatory and supervisory measures on bank stability, development and performance, while Demirguc-Kunt et al (2006) and Pasiouras et al (2006) study the effect of similar measures on banks' overall soundness, as measured by credit ratings. Similarly, other studies have examined the effect of regulations on banking sector crisis (Demirguc-Kunt and Detragiache, 2002;Beck et al, 2006a) and banks' risk taking behaviour (Gonzalez, 2005;Laeven and Levine, 2006). An issue that has received comparatively little attention, however, is what impact the regulatory environment has on bank efficiency, as opposed to other measures of bank performance.…”

Bank Competition and Financial (In)Stability in Europe: A Sensitivity Analysis

“…After the advent of Euro, the necessity to build upon the inefficient or inadequate regulatory responses, respectively. From a theoretical perspective, strong supervision tends to demoralise managers to engage in excessive risk-taking -especially in countries with low accounting requirements (Fernandez and Gonzalez, 2005) -whereas it may be associated with corruption in lending transactions, and obstruction of bank operations (Barth et al, 2004).…”

Binary choice models for external auditors decisions in Asian banks

“…The later, rely heavily on the work of external auditors as they make their evaluations of banks' financial condition [Fields et al (2004)]. As Fernandez and Gonzalez (2005) point out better accounting and auditing systems that provide the regulator with more information about the real risk of bank assets can not only increase the effectiveness of minimum capital requirements but also serve to guide disciplinary action imposed by supervisors on bank management in order to reduce instability. Their empirical results indicate that accounting and auditing systems can be effective devices to counteract tendencies for firm risk-taking associated with bank safety nets.…”