Overlapping Internal Control Regulation in the Banking Industry: A Study of SOX in the Post-FDICIA Era

• In Event: Continental Breakfast and Research & Education Forum
  In Roundtable Session: Table 14: Banking and Audit Issues

Abstract

This study examines whether SOX internal control provisions lead to higher financial reporting quality for banks that are already subject to FDICIA. We measure financial reporting quality using loan loss provision validity. We find that financial reporting quality remained the same from pre- to post-SOX for banks with accelerated filer status, but increased for banks with non-accelerated filer status. Further examination shows that non-accelerated filer banks had lower financial accounting quality, but the gap in financial accounting quality between the two types of banks narrowed post-SOX. Overall, our results suggest that SOX internal control provisions have limited incremental benefits for accelerated filer banks that started with higher level of financial accounting quality in the pre-SOX period.

Authors

• Jayanthi Krishnan, Temple University

• Sophie Li Liang, Temple University