Accounting Seminar: Professor Charles Shi
Peer Effects in Bank Loan Accounting
We show that peer banks play a significant role in determining a bank’s accounting for loan loss provisions. The peer influence is more pronounced for banks with less capable managers and when banks are under greater regulatory scrutiny. Channel tests indicate that peer effects work through observational learning (i.e., learning from the wisdom of the crowd). Finally, we provide evidence suggesting that peer effects improve bank financial reporting quality.