Earnings management, funding and diversification strategies of banks in Africa

Abstract

Purpose – This paper aims to investigate the implications of earnings management for funding and diversification strategy within the context of developing and emerging economies. Design/methodology/approach – The authors raise two issues pertinent to bank earnings management: first, whether there is evidence of earnings management of banks in the selected African countries; and second, what must have accounted for the banks to engage in such practices? Findings – The results show that almost all the 330 banks in the 29 African countries sampled are found to have engaged in some management of their earnings during the period 2002-2009. The authors also find evidence that bank activity mix and funding modes explain bank earnings quality. Overall results indicate that the sensitivity of earnings management to revenue diversification across interest income decreases, as bank market shares increases. Originality/value – The authors investigate how earnings management is affected by banks intermediation strategies.