Bank Earnings Management Research Articles

أثر الحوکمة المصرفية متعددة الطبقات على إدارة الارباح في البنوک الاسلامية - دراسة ميدانية .

Abstract: International financial institutions have become more interested in Islamic banking because of their global growth, especially after the global financial crisis and financial failures resulting from incorrect and unethical administrative practices by manipulating accounting policies for earnings management purposes. This has increased the interest of banking studies in multi-layer governance to decrease earnings management and control of Islamic banking operations, where traditional governance is no longer sufficient alone. Considering that the commitment of Islamic banks to comply with the Shariah represents the most important determinant to their customers. The study focuses on the banks operating in the Gulf market because it has the highest growth rate of 13.63% for Islamic banking and represents with North Africa about 70% of the assets of the global Islamic banking system. This study examines the impact of multi-layer banking governance on reducing earnings management in Islamic banks in the Gulf countries. The study concluded that there is a need for the Islamic banks' Islamic governance, and ways to develop them in the Gulf countries have been proposed. There was no significant difference between Islamic and traditional banks in earnings management practices, while there was a significant correlation between the effectiveness of multilayer governance and earnings management practices in Islamic and conventional banks. Specifically, there is a negative relationship among increasing accounting and financial qualification for members of the Governance Committee, number of governance committee members, Shariah Governance proxies and earnings management. On the other hand, there is a positive relationship among the members who hold the membership of the governance committee and the membership of other

Bank earnings management and analyst coverage: evidence from loan loss provisions

We investigate the role of loan loss provisions in analysts’ decision to follow banks. We find that abnormal loan loss provisions (ALLP), regardless of whether it is income-increasing or income-decreasing, reduce analyst coverage. We interpret this effect with the finding that the greater magnitude of ALLPs decreases the accuracy and increases the dispersion of analysts’ forecasts. In addition, the volatility in ALLPs leads to the decrease in analyst coverage as well. We also find a pecking order for lead analysts’ decisions in a noisy information environment. Lead analysts prefer to follow financial institutions with more accurate loan loss provisions first, then with more positive (incoming-decreasing) ALLPs, and are less likely to follow those with negative (income-increasing) ALLPs. Our findings are robust to endogeneity concerns and indicate that lead analysts are deterred from more aggressive bank earnings management.

Women on boards and bank earnings management: From zero to hero

We examine how women on boards influence bank earnings management. Using the likelihood of a board appointing women directors based on a Blau index of gender diversity in each director's total employment connections outside our sample banks for identification, we find an inverted U -shaped relation between women on boards and bank earnings management. Specifically, when there exists only a marginal number of women directors, banks are more likely to manipulate earnings. But, when the number of women directors reaches three or more, bank earnings management declines. This inverted U -shaped impact is intensified if women sit on audit or nomination committees, is moderated if women directors have higher education levels and more board experience, and is unchanged during the 2007–2009 financial crisis. Our results hold when we use alternative measures of bank earnings management, employ GMM estimations and test for alternative hypotheses for the inverted U -shaped relation.

Does Audit Committee Reduce Earnings Management in Banks? Evidence from Tunisian Context

In the business world, financial information disseminated by companies reveals an undeniable importance, and this is an unavoidable necessity for any decision- making of the various stakeholders (investors, lenders, customers, employees, public authorities, etc.). This study aims to determine the nature of the impact of the introduction of an audit committee on the financial reporting quality, in particular the earnings management, in the banking context. Through the static panel method and a sample of all Tunisian commercial banks, over a period from 2001 to 2014, the study shows, surprisingly, that the audit committee is a catalyst for earnings management.

Discretionary Loan Loss Provisions, Earnings Management and Capital Management in Banks

The two past decades have been marked by a multitude of financial scandals (the Enron failure, WorldCom. etc.) mainly caused by the practices of earning management that have challenged the financial reporting quality disclosed. The purpose of this research is to study the determinants of discretionary loan loss provisions in banks. To achieve this objective, we selected a sample of the main Tunisian banks over the period from 2001 to 2014. The estimation results shows that the banks are opting for earnings management practices through the discretionary loan loss provisions in order to align with international standards, in particular with respect to regulatory capital. In opposition, we found a non-significant relationship between earnings before taxes and provisions and discretionary provisions.

The Analysis of Factors Influencing Earning Management of Conventional Private Banking in Indonesia

Earnings management is an alternative action to achieve their goals, although this action will produce financial reports that can mislead the reader, in fact, many banks in Indonesia do this practice. This study attempts to examine the effect of factors that influence earnings management in conventional Indonesian banks. The variables in this study are credit risk, capital adequacy ratio (CAR), size, managerial ownership and institutional ownership as independent variables and earnings management variables as dependent variables. The population in this study is a conventional private bank in Indonesia. This study uses a purposive sampling technique. The criteria for objects that can be used as samples in this study were obtained by 55 private banks with the period under study from 2015 - 2017. The number of units of analysis of this study was 141 units. The analysis technique used in this study is multiple regression analysis to find the effect of managerial ownership, institutional ownership, credit risk, capital adequacy ratio (CAR), and size factors on earnings management in conventional private banks in Indonesia. This study found that factors, size of banking, and CAR had a positive and significant effect on earning management of conventional private banks in Indonesia. Management ownership factors have a negative and significant effect on earnings management. While Institutional ownership factors have no significant effect on earnings management. This study uses the Jones model in measuring earnings management. In the future it will be better if all models that can measure earnings management are used so that the model can be compared more accurately and more in accordance with the factors we will examine.

Pengaruh Struktur Kepemilikan Terhadap Manajemen Laba Pada Perbankan di Indonesia

Important information for investors that contains information about the company's performance and its accomplishments over a certain period is included in the income statement. One of the qualitative characteristics of financial statements is that they are presented fairly. Public companies and private companies differ in their demands for accounting information and manager's opportunistic behavior. This study aims to obtain new empirical evidence whether there is an influence of ownership structure on earnings management in banks in Indonesia. The population used is all commercial banks in Indonesia in 2012-2014. Sample by using purposive sampling method. The procedure of collecting data by method of documentation. Hypothesis testing using Mann-Whitney U test. The results of the faithful representation side calculated by earnings management, obtained the earnings management of public banks higher than private banks and the difference is both significant. This result concluded that opportunistic behavior is more dominant than demand of high quality of accounting information at public bank in Indonesia.

Activity strategies, information asymmetry, and bank opacity

Using a large panel of US bank holding companies from 2001 to 2015, we investigate the association between functional diversification and bank earnings management. We document a positive relationship between bank earnings management and bank diversification. Our findings are consistent with the hypothesis that diversification increases the asymmetric information of banks, leading to greater discretionary power by bank managers. This effect is most prevalent in smaller banks and non-dividend paying banks. The impact of diversification on earnings management is less pronounced during the crisis. Our study is of interest to regulators and other stakeholders who examine factors which affect behavior of bank managers.

Financial reporting quality and earnings management in Libyan banks: stakeholders' perceptions

This paper ascertains the perceptions of Libyan Commercial Banks' (LCBs) stakeholders in regards to the financial reporting quality through the existence of earning management. This approach to detect for earnings management has been widely adopted by academic and therefore it could be referred to as an academic approach. A total of useable 102 questionnaires from a range of LCB stakeholders comprising preparers of financial statements, users, regulators and academics have analysed to answer the research questions. Earnings management behaviour is viewed as having a place in LCBs' financial reporting due to the existence of a range of factors. Stakeholder groups agreed, on balance, that such behaviour does exist because of local accounting practices, weak external auditor, and poor corporate governance leading to the assumption that financial reporting of LCBs implies managed earnings which eventually suggest that LCBs' financial reporting would have been of less quality given the existence of the factors that may facilitate such behaviour.

Financial reporting quality and earnings management in Libyan banks: stakeholders' perceptions

Financial reporting quality and earnings management in Libyan banks: stakeholders' perceptions

Effect of Corporate Governance on Earnings Management of Commercial Banks in Nigeria

The research examines the effects, magnitude and strength of the relationships between corporate governance and earning management of commercial banks in Nigeria. The research made use of secondary data obtained from annual report and accounts of four commercial banks, First Bank of Nigeria Plc, Zenith Bank Plc, Diamond Bank Plc and United Bank for Africa, from year 2007 to 2017. The nature and magnitude of association between the dependent variable (DPS) and the independent variables were determined using the multiple regression model. The movement pattern of the dependent and independent variable was represented graphically while descriptive statistics was used to check the validity of the result and data. Correlation Analysis was performed to test the strength of the relationship between selected variables. Earnings Per Share was found to be negatively and significantly influenced by Board Size (BDSIZE) while Ownership concentration has a positive and insignificant effect on Earnings Per Share. Board meeting has a positive and significant effect on Earnings Per Share. In line with the agency theory and consistent with the findings, it is implied thatOwnership Concentration and Board Meetingsclosely monitored and improved on as they have positive influence on Earnings Per Share.

상호저축은행의 보상수준과 재량적 대손충당금

상호저축은행의 보상수준과 재량적 대손충당금

Measurement of earnings management before and after applying IFRSS using jones' modified method an applied research in a sample of banks listed in the Iraqi stock exchange

In the year 2016, all commercial banks in Iraq were obliged to switch from the application of the local unified accounting system to the application of International Financial Reporting Standards (IFRSs) to improve the quality of accounting information and make it relevant for decision-making. The objective of the research is to measure earnings management in a number of banks which applied IFRSs at the end of the financial year 2016 through their application on a sample of banks for the years (2012-2013, 2014, 2015, 2016). The results were compared with the measurement of earnings management under the application of the unified accounting system (before the adoption of IFRSs) and after the application of the (IFRSs). The researcher concluded that the percentage of earnings management in the years in which the banks applied the unified accounting system is very close to its percentage in the case of the application of IFRSs, which shows that the application of IFRSs did not change the percentage of earnings management in banks. Â

Earnings management in financial institutions: A comparative study of Islamic banks and conventional banks in emerging markets

This study seeks to examine earnings management practices of Islamic banks and conventional banks in emerging markets. Built upon the notion that organisations with higher ethical considerations are likely to have less severe agency problems, this study hypothesises that Islamic banks with their emphasis on religious and ethical principles would engage in lower earnings management practices as compared to conventional banks. In addition, this study also examines the effects of ownership structure towards earnings management of Islamic banks and conventional banks. This study employs a unique hand-collected financial dataset of 53 Islamic banks and 111 conventional banks over the period of 2006 to 2011 with a total of 838 bank-year observations. Inconsistent with the study's expectation, the results indicate that Islamic banks employ higher earnings management practices through abnormal loan loss provisions (ALLP) as well as to report small positive earnings (SMPOS) compared to their conventional counterparts. These findings are not parallel with Islamic notions of accountability, fairness and justice ethical concepts that should be embedded in all aspects of Islamic banks business activities. The results also show that high ownership concentration exacerbates earnings management practices through ALLP which suggest the entrenchment effect of the controlling owners to hide their private benefit extractions. This study offers some useful insights that in order to uphold the authenticity of Islamic ethical values in Islamic banks business practices, bank regulators should monitor the number of debt-based financial instruments and at the same time encourage the use of profit and loss sharing (PLS) mode of financial products in Islamic banking operations.

Audit Committee and Discretionary Loan Loss Provisions in Tunisian Commercial Banks

The purpose of this paper is to study the effect of the audit committee (presence, expertise, independence, size and activity) on earnings management of banks. We selected a sample of ten Tunisian commercial banks examined over the 2001 to 2014 period. The regression models are estimated using the “Panel Corrected Standard Errors” method of Beck and Katz (1995). Our empirical results highlight the effective role of the audit committee's expertise in mitigating discretionary practices. However, the number of meetings, which is less than the standard required by regulatory authorities, does not have a significant disciplinary effect on discretionary loan loss provisions. Results also report that Audit committee’s independence and size have positive effects on discretionary loan loss provisions in our sample.

Discretionary Loan-Loss Provision Behavior in the US Banking Industry

Earnings management can be either opportunistic, adding noise to reported earnings, or informative about a firm’s underlying economic performance, adding valuable information to financial reports. This study examines earnings management in banks with differing levels of information asymmetry. Specifically, we compare earnings management between public and private banks by using discretionary loan-loss provisions (DLLPs) as proxies. Employing a large dataset of US public and private banks from 1986:Q1 to 2013:Q4, this study provides evidence of stronger earnings management behavior in public banks versus private banks. The evidence remains robust under a battery of sensitivity tests. Since incentives for earnings management are more relevant within a specific context, we identify the conditions that motivate different earnings management incentives, which allows us to better observe specific managerial motives. Greater DLLPs observed in public banks are utilized to send private information to investors, consistent with the signaling hypothesis. We also find evidence that capital requirements alter DLLPs, consistent with the capital management hypothesis. Banks with relatively low (high) earnings tend to decrease (increase) their earnings through manipulation of DLLPs, inconsistent with our income-smoothing hypothesis. The study extends to current debates on earnings management between public and private firms, and also provides a better understanding of the determinants of earnings management.

Institutional Investors and Bank Earnings Management

Despite the growing importance of institutional investors in global capital markets and the link between bank earnings management and financial crash risk, little is known about the role of institutional investors in mitigating bank earnings management. We conduct the first international analysis of this issue using a broad sample of banks and institutional investors. We find a negative relation between institutional ownership and bank earnings management, after controlling for the stringency of a country’s bank regulations and other relevant bank and country characteristics. Additionally, institutional ownership is more negatively related to earnings management in countries with more-stringent bank disclosure requirements or when ownership is held by domestic rather than foreign institutional investors. Institutional ownership is also more negatively related to earnings management in countries in which insiders extract more private benefits or when ownership is held by institutional blockholders. Our findings have important policy implications regarding institutional investors’ engagement with banks.

Activity Strategies, Information Asymmetry, and Bank Opacity

Using a large panel of US bank holding companies from 2001 to 2015, we investigate the association between functional diversification and bank earnings management. We document a positive relationship between bank earnings management and bank diversification. Our findings are consistent with the hypothesis that diversification increases the asymmetric information of banks, leading to greater discretionary power by bank managers. This effect is most prevalent in smaller banks and non-dividend paying banks. The impact of diversification on earnings management is less pronounced during the crisis. Our study is of interest to regulators and other stakeholders who examine factors which affect behavior of bank managers.

Corporate Governance and Earnings Management: A Banking Industry Perspective

This paper addresses interrelation of corporate governance mechanism and income-increasing earnings management from a banking perspective. Specifically, it investigates the impact of Hong Kong Corporate Governance Code (measured by board and audit committee characteristics) on earnings management, using a sample of 28 banks listed in Hong Kong Exchanges and Clearing Market from 2005 to 2016. By using two earnings management proxies, namely small positive net income (SPOS) and loan loss provisions (LLP), applying logit and linear regression models respectively, this study documents that increasing number of committees under board of directors (NOCOM) and proportion of audit experts on audit committee (AUEXP) will decrease the tendency as well as the magnitude of upward earnings management in banks listed in Hong Kong. The paper adds to the body of research on corporate governance and earnings management in the East Asian region and help regulators to find out the effectiveness of Corporate Governance Code in constraining opportunistic behavior in the banking industry.

Earnings management in islamic and conventional banks: Does ownership structure matter? Evidence from the MENA region

The aim of this paper is to compare earnings management between conventional and Islamic banks and to examine whether ownership structure affects earnings management in the banking industry of emerging markets. Using a sample of Conventional and Islamic banks from Middle Eastern and North African (MENA) countries, we first found evidence that Islamic bank manage less their earnings than conventional banks. Second, both Islamic and conventional banks with more concentrated ownership use discretionary loan loss provisions to manage their earnings. Third, institutional owners encourage earnings management in Islamic banks and State participation increases earnings management in conventional banks. Finally, family owners reduce this practice in both types of banks.