Design and Examination of a Model for Stabilization of Banks Based on Financial Reporting Quality

Regarding the critical role of Banking system’s stability and explanation of financial reporting (as the final result of accounting profession and administrative bodies), the main aim of this paper is to model the banking system stability, based on financial reporting quality. In the second phase, using financial reporting quality, the assessment of approaches which could be used to stabilize banking system is at the center of attention.

Those purposes have been fulfilled, using the Basel 3 stability index and a comprehensive measure of financial reporting quality estimated in a dynamic panel setting, and using a sample of 16 banks during 2007 to 2017 time period.

The findings show positive evidence about the first hypothesis (the credibility of research model for modeling banking system stability based on financial reporting quality) and we also provide confirmatory results about our second hypothesis (promotion of banking network through financial reporting quality using a dynamic LLP approach).  The research results also confirm a positive relationship between the banking system’s stability and financial reporting quality. Furthermore, our results indicate that the implementation of dynamic LLP instead of static LLP approach could lead to stabilization of the banking system through financial reporting quality.