arbiter
JournalsAccount

The Effect of the Balance Sheet Approach on the Usefulness of Accounting Information in Assessing Bank Default Risk

Peter R. Demerjian et al.

Journal of Accounting Auditing and Finance2026https://doi.org/10.1177/0148558x261423233article
AJG 3ABDC A
Weight
0.50

Abstract

This study investigates the association between the balance sheet approach, where financial reporting focuses on asset and liability valuation, and the usefulness of the capital adequacy ratio in the evaluation of bank default risk by credit rating agencies. We examine Japanese banks, which play the central role in the Japanese economy, whose capital adequacy ratios are affected by fair value measurement under the balance sheet approach. We adopt Demerjian’s approach to develop a bank-level measure of balance sheet focus. Although we find a significant positive correlation between the slack of the regulatory capital adequacy ratio and issuer rating, this positive correlation weakens significantly as a bank’s dependence on the balance sheet approach increases. Our results suggest the balance sheet approach makes financial reporting less useful for measuring bank risk.

Open via your library →

Cite this paper

https://doi.org/https://doi.org/10.1177/0148558x261423233

Or copy a formatted citation

@article{peter2026,
  title        = {{The Effect of the Balance Sheet Approach on the Usefulness of Accounting Information in Assessing Bank Default Risk}},
  author       = {Peter R. Demerjian et al.},
  journal      = {Journal of Accounting Auditing and Finance},
  year         = {2026},
  doi          = {https://doi.org/https://doi.org/10.1177/0148558x261423233},
}

Paste directly into BibTeX, Zotero, or your reference manager.

Flag this paper

The Effect of the Balance Sheet Approach on the Usefulness of Accounting Information in Assessing Bank Default Risk

Flags are reviewed by the Arbiter methodology team within 5 business days.

Evidence weight

0.50

Balanced mode · F 0.40 / M 0.15 / V 0.05 / R 0.40

F · citation impact0.50 × 0.4 = 0.20
M · momentum0.50 × 0.15 = 0.07
V · venue signal0.50 × 0.05 = 0.03
R · text relevance †0.50 × 0.4 = 0.20

† Text relevance is estimated at 0.50 on the detail page — for your query’s actual relevance score, open this paper from a search result.