The Effects of Regulatory and Contracting Costs on Banks' Choice of Accounting Methods for Other Postretirement Employee Benefits

This paper examines banks' choice of accounting methods in a new regulatory environment that more closely ties regulatory monitoring to GAAP numbers. The study finds that banks' choice of the implementation method for SFAS 106 is consistent with an attempt to balance the increased regulatory costs with earnings management benefits. Moreover, banks strategically chose the adoption timing of both SFAS 106 and SFAS 109 to further reduce regulatory costs. The implementation method choice is consistent with a portfolio approach where managers simultaneously consider the existing discretionary accrual levels vis-a-vis the financial reporting effects of impending accounting standards.