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on Regulation |
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Issue of 2006‒12‒04
eight papers chosen by Christian Calmes Universite du Quebec en Outaouais, Canada |
| By: | Luiz Humberto Cavalcante Veiga; Joaquim Pinto de Andrade; André Luiz Rossi de Oliveira |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:anp:en2006:72&r=reg |
| By: | Ojo, Marianne |
| Abstract: | The incoming Labour administration in 1997 caused a stir when it gave the Bank of England additional monetary policy powers but removed the Bank’s powers to regulate banking. Up till 1997, banking regulation had been the function of the Bank of England while other areas of financial services had been regulated by bodies such as: The Securities and Investment Board (for investment business) and the Department of Trade and Industry (for insurance). Section 21 of the Bank of England Act 1998 effectively transferred banking supervision to the Financial Services Authority (then known as the Securities and Investments Board). This paper amongst other objectives, aims to explore how the Financial Services Authority ( the FSA) as a regulator, could benefit from the expertise of the external auditor as a middleman, to avoid regulatory capture. As an efficient system of accountability would also help prevent regulatory capture, the issue of accountability will also be discussed. A consideration of developments leading to the adoption of a single regulator in the UK, will illustrate how the type of regulator can contribute to knowledge of how the external auditor can assist the regulator. Furthermore, not only does this paper consider how the introduction of the FSA has improved transparency and accountability within the banking regulatory and supervisory system, but also the claim that the external auditor could further employ his expertise to help the regulator avoid regulatory capture. |
| Keywords: | single; regulator; regulatory; capture; external; auditor; banking; supervision |
| JEL: | K2 |
| Date: | 2005–05 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:230&r=reg |
| By: | Ojo, Marianne |
| Abstract: | The emergence of powerful financial conglomerates operating at a global level has led to unified supervision of financial services in the UK and Germany. These changes in regulatory structures have a higher potential of better utilisation through the involvement of external auditors. The crucial role played by external auditors in banking regulation and supervision has been highlighted in bank collapses like BCCI and Barings. According to the Basel Core Principles for effective Banking Supervision 1997, an effective banking supervisory system should consist of both “on-site” and “off-site” supervision. Off-site supervision involves the regulator making use of external auditors. On-site work is usually done by the examination staff of the bank supervisory agency or commissioned by supervisors but may be undertaken by external auditors. Following Enron's collapse, debates focussed around why the UK had avoided its Enron. Many argued that it was because the US approach to accounting regulation was rules-based in comparison to the principles-based system of the UK . In addition to adopting an independent standard setting, the International Accounting Standards Board's second principle is aimed at principles as opposed to rules based standards. All public trading companies in the European Union would have to apply new international standards from 2005 in consolidated financial statements ( EC Regulation 1606/2002) and huge efforts are now being made towards global convergence. |
| Keywords: | international; accounting; organisations; external; auditor; financial; supervision |
| JEL: | M4 |
| Date: | 2006–03 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:354&r=reg |
| By: | Sosay, Gül; Zenginobuz, Unal |
| Abstract: | While the diffusion of independent regulatory agencies (IRAs) across economically advanced countries has attracted much scholarly attention in recent years, systematic work on their spread across developing countries is still scarce. In an effort to address this gap in literature, this paper aims to analyze the diffusion of regulatory agencies in emerging economies in Latin America, Asia, and Central and Eastern Europe. At this early stage of our research, we aim to emprically map out regulatory agencies in economic regulation sectors (e.g. competition, finance, and utilities/infrastructure) enjoying some degree of autonomy or independence in emerging economies, rather than limiting our focus solely on those that meet all the criteria for independence in the strictest definition of the term. Such exploratory analysis constitutes the first step towards studying processes of diffusion in general and the mechanisms that lead to the creation of regulatory agencies in these economies in particular. The second objective of this paper is to examine the mechanisms which we expect to be at work in the spread of IRAs in the selected emerging economies. We argue that despite the creation of a number of agencies in the countries concerned before 1990, diffusion has become evident and “interdependent”, as opposed to spurious in the 1990s. |
| Keywords: | independent regulatory agencies; emerging economies |
| JEL: | L50 H83 |
| Date: | 2005–09–05 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:380&r=reg |
| By: | Charles, Lee; David, Ng |
| Abstract: | Using firm-level data from 44 countries, we investigate the relation between corruption and international corporate values. Our analysis shows that firms from more corrupt countries trade at significantly lower market multiples. The effect is both economically and statistically significant. Furthermore, using a two-stage estimation procedure, we show that corruption impacts firm value primarily through lower expected future cash flows, most directly captured by firms’ profitability forecasts. Collectively, our evidence shows corruption has significant economic consequences for shareholder value. |
| Keywords: | corruption; international valuation; market multiple |
| JEL: | G00 G3 |
| Date: | 2002–11 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:590&r=reg |
| By: | Haselmann, Rainer; Pistor, Katharina; Vig, Vikrant |
| Abstract: | A voluminous literature seeks to explore the relation between law and finance, but offers little insights into dynamic relation between legal change and behavioral outcomes or about the distributive effects of law on different market participants. The current paper disentangles the law-finance relation by using disaggregate data on banks’ lending patterns in 12 transition countries over a 8 year period. This allows us to control for country level heterogeneity and differentiate between different types of lenders. Employing a differences-in-differences methodology in an exclusive ”laboratory” setting as well as unique hand collected datasets on legal change as well as changes in bank ownership, we find that lending volume responds positively to legal change. However, not all legal change is equally effective. The introduction of a legal regime that enhances each lender’s individual prospects of enforcing her claims (collateral law) results in greater increases in lending volume than changes in bankruptcy law, the essence of which is to provide an orderly liquidation or reorganization process in the presence of multiple creditors. Finally, we find that banks that newly enter the market respond more strongly to legal change than do incumbents. In particular, foreign-owned banks extend their lending volume substantially more than domestic banks. |
| Keywords: | creditor rights; credit market development; bankruptcy; collateral law; bank lending |
| JEL: | G28 G21 F37 F34 G33 |
| Date: | 2006–09 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:157&r=reg |
| By: | Jesus, Saurina; Gabriel, Jimenez |
| Abstract: | This paper finds strong empirical support of a positive, although quite lagged, relationship between rapid credit growth and loan losses. Moreover, it contains empirical evidence of more lenient credit standards during boom periods, both in terms of screening of borrowers and in collateral requirements. We find robust evidence that during upturns, riskier borrowers get bank loans, while collateralized loans decrease. We develop a regulatory prudential tool, based on a countercyclical, or forward-looking, loan loss provision that takes into account the credit risk profile of banks’ loan portfolios along the business cycle. Such a provision might contribute to reinforce the soundness and the stability of banking systems. |
| Keywords: | credit risk; lending cycles; loan loss provisions; bank capital; collateral |
| JEL: | G00 G0 |
| Date: | 2006–03–20 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:718&r=reg |
| By: | Ojo, Marianne |
| Abstract: | The role of the external auditor in the supervisory process requires standards such as independence,objectivity and integrity to be achieved. Even though the regulator and external auditor perform similar functions, namely the verification of financial statements, they serve particular interests. The regulator works towards safeguarding financial stability and investor interests. On the other hand, the external auditor serves the private interests of the shareholders of a company. The financial audit remains an important aspect of corporate governance that makes management accountable to shareholders for its stewardship of a company. The external auditor may however, have a commercial interest too. The debate surrounding the role of external auditors focusses in particular on auditor independence. A survey by the magazine “Financial Director” shows that the fees derived from audit clients in terms of non-audit services are significant in comparison with fees generated through auditing. Accounting firms sometimes engage in a practice called “low balling” whereby they set audit fees at less than the market rate and make up for the deficit by providing non audit services. As a result, some audit firms have commercial interests to protect too. There is concern that the auditor's interests to protect shareholders of a company and his commercial interests do not conflict with each other. Sufficient measures need to be in place to ensure that the external auditor's independence is not affected. Brussels proposed a new directive for auditors to try to prevent further scandals such as those of Enron and Parmalat. The new directive states that all firms listed on the stock market must have independent audit committees which will recommend an auditor for shareholder approval. It also states that auditors or audit partners must be rotated but does not mention the separation of auditors from consultancy work despite protests that there is a link to compromising the independence of auditors. However this may be because Brussels also shares the view that there is no evidence confirming correlation between levels of non-audit fees and audit failures and that as a result, sufficient safeguards are in place. |
| Keywords: | audit; independence; banking; supervision |
| JEL: | M4 |
| Date: | 2006–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:231&r=reg |