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Systematic bias effects and regulator intervention: The savings and loan industry
Abstract
The purpose of the research was to identify the nature and extent of bias effects created by adoption of voluntary Regulatory Accounting Principles (RAP) and the impact this bias may have had on the timing of the regulatory decision to intervene in thrift operations. Using random samples of failed (n = 110) and nonfailed (n = 110) Savings and Loan Associations from the population of thrifts reporting one or more voluntary RAP provisions in 1988, descriptive logistic regression models were estimated using reported RAP data and estimated GAAP data. Empirical evidence showed that models using RAP data inputs were more likely to classify marginal firms as nonfailures and models using estimated GAAP data were more likely to classify marginal firms as failures. Analysis of RAP adoption suggested that weaker thrifts were more likely to adopt voluntary RAP provisions, but the rates of adoption and financial effect of the adoptions were not generally significant. Individual explanatory variables showed diverse discrimination ability, but multivariate models were generally effective in classifying observations correctly as failed or nonfailed. Nonfailure observations showed relative stability for the primary measure of capital adequacy (net worth to total assets), but failure observations showed significant deterioration of capital adequacy over time. The capital adequacy ratio dominated the multivariate models in the last three years of the study period.
Subject Area
Accounting
Recommended Citation
Korte, Leon, "Systematic bias effects and regulator intervention: The savings and loan industry" (1992). ETD collection for University of Nebraska-Lincoln. AAI9225475.
https://digitalcommons.unl.edu/dissertations/AAI9225475