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

Authors: Ziyun Yang; Xiaobo Dong; Wei-Chih Chiang

Addresses: College of Business, University of Houston-Victoria, 22400 Grand Cir Blvd Suite 206, Katy, TX 77449, USA ' College of Business, University of Houston-Victoria, 22400 Grand Cir Blvd Suite 206, Katy, TX 77449, USA ' College of Business, University of Houston-Victoria, 22400 Grand Cir Blvd Suite 206, Katy, TX 77449, USA

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.

Keywords: social capital; community banks; earnings management; financial reporting quality; discretionary loan loss provision; external regulations.

DOI: 10.1504/IJAAPE.2021.121495

International Journal of Accounting, Auditing and Performance Evaluation, 2021 Vol.17 No.3/4, pp.317 - 335

Received: 02 Apr 2020
Accepted: 03 Feb 2021
Published online: 16 Mar 2022 *

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