A Test of Government Regulation of Accounting Principles.

Abstract The purpose of this article is to provide evidence on the value of government regulation of accounting reports. The banking industry was initially exempt from the disclosure provisions of the Securities Act of 1933 and the Securities and Exchange Act of 1934, because the U.S. Congress apparently felt that the banking industry was already regulated. In 1964, the Securities Acts were amended to require specifically that the Comptroller of the Currency, the Federal Reserve Bank, and the Federal Deposit Insurance Corporation regulate bank financial reporting. To test whether or not the informational content of state bank financial statements increased after the regulations, some surrogate for information must be used, because information itself is not directly measurable. Changes in security prices are commonly used as a proxy for information because stock prices represent weighted averages of investor expectations. The test based on the stable symmetric distribution and the non-parametric test both indicate that the announcement of bank financial data is associated with unexpected price movements which is consistent with the belief that financial statements contain information that investors act on.