Financial statement comparability and bank risk-taking

This study examines the relationship between financial statement comparability and bank risk-taking. Our analysis of a sample of publicly listed U.S. banks over the 1994–2019 period shows that banks with more comparable financial statements are related to significantly less risk-taking. We also find that the negative relationship between comparability and risk-taking is more pronounced for firms with more severe moral hazard and agency problems. Our documented findings are robust across alternative measures of comparability and risk-taking and considering change analysis, after controlling for strength of corporate governance and using propensity score matching and two-stage least squares estimation to address endogeneity concerns. Our analysis also shows that the relationship between financial statement comparability and bank risk-taking is stronger for smaller banks than for larger banks. Overall, this study provides unique insights into the role of financial statement comparability in curbing risk-taking in the banking sector.