Accounting for wrongdoing. The financial consequences of bank misconduct

J. Fernández de Bilbao, I. Figuerola-Ferretti Garrigues, I. Paraskevopoulos, A. Santos

Journal of Accounting and Public Policy Vol. 51, pp. 107317-1 - 107317-34

Resumen:

This paper investigates the determinants influencing banks’ decisions to disclose P&L misconduct-related charges and assesses the extent to which these P&L charges can predict future misconduct penalty announcements. Previous research has largely focused on the penalty announcements as the primary indicator for the financial consequences of bank misconduct. However, the P&L impact of misconduct is influenced by accounting rules that drive banks to disclose a provision or cost ahead of the announcement of a future penalty. Using a sample of hand collected data for Global Systemically Important Banks, we establish that disclosure of misconduct provisions is primarily determined by accounting standards. We also demonstrate that misconduct provisions are accrued prior to a penalty being announced and provide advance indication of the amount of forthcoming penalties. While misconduct provisions, when available, could be considered the optimal measure of misconduct, the empirical evidence shows that their disclosure is limited. On the other hand, banks often make known their misconduct-related P&L costs on their quarterly financial documents. These disclosures are frequent, comprehensive and pervasive across different accounting standards, with expected penalty size as the primary determinant of their disclosure. P&L misconduct costs also share the forward-looking nature of provisions. This implies that, when P&L misconduct related costs are disclosed, markets react accordingly, anticipating a future penalty. Our research provides the first analysis of the accounting elements of bank misconduct, the interaction between misconduct disclosures and penalty announcements and the influence of these disclosures on stock returns.

Palabras Clave: Bank misconduct; Bank accounting; Financial disclosures; Bank shareholder value

Índice de impacto JCR y cuartil WoS: 3,300 - Q1 (2023)

Referencia DOI: https://doi.org/10.1016/j.jaccpubpol.2025.107317

Publicado en papel: Mayo 2025.

Publicado on-line: Abril 2025.

Cita:
J. Fernández de Bilbao, I. Figuerola-Ferretti Garrigues, I. Paraskevopoulos, A. Santos, Accounting for wrongdoing. The financial consequences of bank misconduct. Journal of Accounting and Public Policy. Vol. 51, pp. 107317-1 - 107317-34, Mayo 2025. [Online: Abril 2025]