Publication Type

Journal Article

Version

Postprint

Publication Date

7-2017

Abstract

We investigate the effects of informal institutions (trust, religiosity and the media) on the relationship between accounting-based risk measures and bank distress. We conduct our analysis in two stages. In the first stage, we extend the prior literature by documenting a link between accounting-based risk measures and bank distress during the 2008-2009 financial crisis. In particular, given the environment characterized by rapid growth in financial innovation and complex financial transactions prior to the crisis, simple accounting-based risk measures continue to predict bank distress during this crisis period. In the second stage, we address our main research question related to the effects of selected informal institutions (societal trust, religiosity, and the media) in enhancing the predictive ability of accounting-based risk measures. As hypothesized, we find that these informal institutions enhance the predictive ability of accounting-based risk measures. Our results inform regulators that the focus on strengthening formal institutions should not ignore country-specific informal institutional structures.

Keywords

Informal institutions, Accounting-based risk measures, Trust, Religion, Media, Bank failure, Bank financial trouble, Financial crisis

Discipline

Accounting | Finance and Financial Management

Research Areas

Corporate Governance, Auditing and Risk Management

Publication

Journal of International Accounting Research

Volume

16

Issue

2

First Page

37

Last Page

66

ISSN

1542-6297

Identifier

10.2308/jiar-51827

Publisher

American Accounting Association

Additional URL

https://doi.org/10.2308/jiar-51827

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