AbstractWe investigate the role of prudential supervisors’ independence in affecting income smoothing behavior in European banks. Powerful national supervisors are predicted to influence the accounting practices of their supervised entities, shaping the properties of the accounting numbers they prepare. In particular, we study whether greater independence of powerful supervisors from the government and from the industry is associated with lower income smoothing. We use the mandatory adoption of a single set of accounting standards in Europe as a shock to the influence of prudential supervisors over national banks’ accounting practice. Our results confirm that political and industry independence of the supervisor are important determinants of income smoothing. This suggests that independence of prudential supervisors is a desirable governance characteristic, with positive impacts on financial transparency.DOI: https://doi.org/10.1016/j.jbankfin.2019.03.001
Anna Toldrà Simats, Bing Guo and Sergio Vicente received a research grant from Ramón Areces Foundation.
Our colleages have obtained a research grant awarded by the Fundación Ramón Areces. Their project is lead by Anna Toldrà and it is entitled “¿Qué impulsa la innovación? El papel de la regulación de los mercados de capitales, bancario y de bienes”.
December 16, 2015
