No abstract

The research aims to investigate the impact of increased capital requirements and high liquidity levels on the profitability of European banks in the post crisis period. The study examines the largest banks in the European Union spanning 28 countries using data from 2010 to 2018. It used three measures to define bank profitability: return on average assets, return on average equity, and operating profit to risk weighted assets. Capital, liquidity, size, and asset quality represent bank specific determinants, while economic growth and inflation are considered as the main external determinants having influence on profitability. We used multiple regression models to analyze the association amongst the variables. The results revealed a positive and significant association between liquidity level and bank performance. Asset quality showed a negative and statistically significant influence on bank performance, while economic growth and inflation have no significant influence on bank performance. The study concludes that there is limited influence of the Basel III on bank profitability although the policy is important in achieving banking stability. This study contributes to the literature by empirically analyzing the impact of capital regulation on bank performance for the biggest banks in Europe. Although the Basel III framework is important for prudential banking, its effects on the performance of European bank is debatable.

This study examines the effectiveness of audit committee (AC) financial expertise in mitigating accrual and real earnings management (AEM and REM hereafter). Although extant studies have examined the effects of AC expertise on earnings management, findings are inconclusive. Prior studies have also focused mainly on AEM not REM. We used the data for a sample of Hong Kong Hang Seng Composite Index with 1714 firm‐year observations between 2010 and 2015, which was analyzed using panel fixed effect regression models. The results show statistically significant negative relationship between AC financial expertise and AEM but surprisingly, we find that AC financial expertise is associated with increase in REM. We argue that whilst AC members have developed monitoring skills on AEM, REMs are relatively recent and are more complicated to detect. We argue that management may be shifting their opportunistic use of earnings management from AEM to REM. A possible reason could be a steep AC's learning curve on the nature of REM. Our investigation provides evidence on the impact of AC expertise on both AEM and REM from a unique context.