Economic Consequences of Mandatory Auditor Reporting to Bank Regulators

Balakrishnan, K, De George, E T, Ertan, A and Scobie, H (2021) Economic Consequences of Mandatory Auditor Reporting to Bank Regulators. Journal of Accounting and Economics, 72 (2-3). ISSN 0165-4101 OPEN ACCESS


We study the economic consequences of mandates that require bank auditors to report to bank regulators. Based on survey responses from the European Central Bank and all 28 national bank regulators within the European Union and a review of national banking regulations, we create a novel dataset on these mandates. Exploiting the cross-sectional and time-series variation in these mandates, we find evidence that auditor reporting to bank regulators reduces bank riskiness, as measured by counterparty risk and credit spreads. We also observe a decline in problem loans and risk-weighted assets, as well as improvements in timeliness of loan loss provisions. Additional analyses suggest that mandated auditor reporting increases the effectiveness of supervisory and monitoring efforts and improves market discipline of banks. However, mandated auditor reporting comes with costs: it reduces future lending growth, risky lending, and profitability, and increases audit fees paid by shareholders.

More Details

Item Type: Article
Subject Areas: Accounting
Funder Name: London Business School
Date Deposited: 18 Aug 2021 08:08
Date of first compliant deposit: 19 Aug 2021
Last Modified: 23 May 2024 00:47

Export and Share


Accepted Version - Text


View details on Dimensions' website

Downloads from LBS Research Online

View details

Actions (login required)

Edit Item Edit Item