Article ID Journal Published Year Pages File Type
7360233 Journal of Economics and Business 2018 47 Pages PDF
Abstract
It is well documented that institutional development has greatly enhanced bank stability by reducing risk-taking. We examine the causal effect of accounting system development on bank risk-taking based on difference-in-difference (DID) models in the context of institutional reforms. By creating two distinct measures of the accounting system: the distance to the International Financial Reporting Standards (IFRS Index) and the domestic accounting law enactment (Accounting Law Index), we show that the accounting system has a significant impact on bank risk-taking in the Central and Eastern European (CEE) countries. Specifically, compliance with the IFRS induces large drop in bank risk, while increased domestic accounting laws lead to greater risk-taking. We also show that European Union membership reinforces the effect of the IFRS Index on bank risk-taking for those transition countries.
Related Topics
Social Sciences and Humanities Business, Management and Accounting Strategy and Management
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