5. Exploring the Role of Business Models

Recent research supports the idea that banks characterised by business models drawing more on traditional retail funding, namely customer deposits, and income diversification is likely to engage more in income smoothing than other business models (Di Fabio, Journal of Applied Accounting Research 20:311–330, 2019). Indeed, being income smoothing an accounting behaviour consistent with entities’ aim to show lower riskiness, findings of this research are overall consistent with literature suggesting that traditional funding and income diversification strategies implemented by retail banks are an integral part of a strategy characterised by risk aversion (Köhler, Journal of Financial Stability 16:195–212, 2015). Additionally, evidence provided in the fourth chapter corroborates prior literature supporting the view that supervisory strictness is associated with income smoothing behaviours (Gebhardt & Novotny-Farkas, Journal of Business Finance and Accounting, 38:289–333, 2011; García-Osma et al., Journal of Banking and Finance, 102:156–176, 2019; Di Fabio et al., Journal of International Accounting, Auditing and Taxation, 43: 100385, 2020). This chapter aims to understand whether supervisory features have specifically an impact on accounting behaviour of banks characterised by certain business models.