The impact of statutory audit and corporate reporting directives on compliance costs, risk-taking and reporting quality of the EU banks

Abstract

The paper examines the effects of recently introduced Statutory Audit and Corporate Reporting Directives (SACORD) on compliance costs and risk taking of the EU banks. Using data of 80 EU banks and 71 non-EU banks for the period 2004 to 2013, we estimate the effects of SACORD regulation compliance costs, risk taking and quality of reporting. Our results show that the economic effects of SACORD on audit fees are approximately 19 to 33 percent higher relative to the non-EU banks. We also find robust evidence of significant increase in in total compliance costs. The findings are consistent with those reported in the previous literature mainly for the US banks that regulation increases compliance costs. Further, we find that post SACORD, there is a significant increase in risk-taking and a decline in reporting quality. Findings suggest that the SACORD regulation does not appear to have the desired effects of constraining risk-taking by banks.