Abstract Book of the 10th International Conference on Research in Management and Economics
Year: 2025
[PDF]
A New Measure of Bank Financial Reporting Quality: Granularity of Accounting Data in Call Reports
Shuping Chen, Chih-Yung Lin, Bin Miao, Rui-Xiang Zhai
ABSTRACT:
We construct and validate a new measure of bank reporting quality, BRQ, and demonstrate its usefulness. Conceptually BRQ captures the granularity of accounting information in banks’ Call Reports, and empirically BRQ is constructed as the ratio of non-missing accounting items over the total number of accounting items in Call Reports. Higher BRQs indicate greater granularity and better financial reporting quality. We validate BRQ by demonstrating that BRQ is negatively associated with bid-ask spreads, analysts’ forecast error and dispersion, stock price volatility, as well as discretionary loan loss provisions, a predominant bank financial reporting quality measure. We further demonstrate that BRQ is a robust predictor of subsequent loan chargeoffs and bank failures and stock performance during the 2008 Financial Crisis, and that BRQ can enhances the ability of loan loss reserves in predicting future loan charge-offs. BRQ complements existing measures and adds a valuable tool for future research.
Keywords: bank financial reporting quality, granularity of accounting information, financial statement details, information asymmetry, loan loss provisions, net charge offs, Financial Crisis, Call Reports, FFIEC, imperfect monitoring, regulatory fragmentation