This paper addresses whether events leading to three regulatory accounting principles issued by the Federal Home Loan Bank Board affected the market value of Savings and Loan Associations (S&Ls). The market reaction to these regulations is predicted to be positive since they effectively eased minimum regulatory net worth requirements. A significant market reaction is observed for the regulation that allowed S&Ls to increase regulatory net worth by permitting appraised equity capital. However, results are inconsistent with the alternative hypothesis associated with the regulations permitting deferral of loan losses and net worth certificates.

The voluntary use of regulatory accounting principles (RAP) by Savings and Loans (S&Ls) is predicted to be related to ownership structure, proximity to violation of net worth requirements, political factors, and prior use of RAP. We examine the decisions to both adopt and retain the use of several RAP: two ‘cosmetic’ RAP that are relatively independent of other economic decisions and two ‘noncosmetic’ RAP that directly interact with investment or financing decisions. S&Ls using RAP tend to: (a) be mutuals, (b) have low regulatory net worth, (c) be larger (for S&Ls adopting RAP), and (d) have used other RAP in the prior period.