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Social capital, external regulations, and financial reporting quality: evidence from community banks

Social capital, external regulations, and financial reporting quality: evidence from community banks Using a large sample of US community banks, we study how social capital affects bank managers' opportunistic reporting behaviour. We argue that high social capital reduces information asymmetry between managers and stakeholders and increases the cost of opportunistic reporting for managers. Supporting this argument, we find that social capital is negatively associated with discretionary loan loss provisions. We further find that the negative relation between social capital and opportunistic reporting behaviour is weaker when in banks subject to stronger regulations, which suggests that strong regulations act as a substitute to high social capital in constraining banks' opportunistic reporting behaviour. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png International Journal of Accounting, Auditing and Performance Evaluation Inderscience Publishers

Social capital, external regulations, and financial reporting quality: evidence from community banks

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Publisher
Inderscience Publishers
Copyright
Copyright © Inderscience Enterprises Ltd
ISSN
1740-8008
eISSN
1740-8016
DOI
10.1504/ijaape.2021.121495
Publisher site
See Article on Publisher Site

Abstract

Using a large sample of US community banks, we study how social capital affects bank managers' opportunistic reporting behaviour. We argue that high social capital reduces information asymmetry between managers and stakeholders and increases the cost of opportunistic reporting for managers. Supporting this argument, we find that social capital is negatively associated with discretionary loan loss provisions. We further find that the negative relation between social capital and opportunistic reporting behaviour is weaker when in banks subject to stronger regulations, which suggests that strong regulations act as a substitute to high social capital in constraining banks' opportunistic reporting behaviour.

Journal

International Journal of Accounting, Auditing and Performance Evaluation – Inderscience Publishers

Published: Jan 1, 2021

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