Template-type: ReDIF-Paper 1.0
Author-Name: Donato Masciandaro
Author-Name: Davide Romelli
Title: Banking Supervision and External Autditors: What works best?
Abstract: What are the pros and cons of involving external auditors in banking supervision? This paper investigates the relationship between banking supervision and the involvement of external auditors from a theoretical and empirical perspective. We first provide a simple principal-agent framework that highlights the importance of several country-specific institutional characteristics in determining an optimal level of involvement of external auditors in banking supervision. We then propose a new index that captures the degree of involvement of external auditors in financial sector supervision. We construct this index for a broad set of 142 countries and show that countries characterized by higher levels of auditor involvement in supervision are less likely to experience a financial crisis. These results provide new and original empirical evidence on the link between regulatory and supervisory institutional designs and the probability of financial distress.
Classification-JEL: G21, G28
Keywords: Banking Supervision, Auditing, Delegation, Economics and Law
Length: 33 pages 
Number: 1746
Creation-Date: 2017
File-URL: https://repec.unibocconi.it/baffic/baf/papers/cbafwp1746.pdf
File-Format: application/pdf
File-Size: 441
Handle: RePEc:baf:cbafwp:cbafwp1746