IFRS 9, earnings management and capital management by European banks

Norouzpour, Mohammadmahdi; Nikulin, Egor; Downing, Jeff

doi:10.1108/jfra-06-2022-0237

Cited by 3 publications

(2 citation statements)

References 33 publications

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“…Firstly, we augment the debate on bank LC by focusing on the relevance of accounting standards. This contrasts with related prior research which focuses on the impact of IFRS-9 on other financial metrices such as provisions, risk-taking, credit or even capital management (Kim et al, 2020;Lopez-Espinosa et al, 2021;Abuaddous, 2023;Kyiu and Tawiah, 2023;Salazar et al, 2023;Norouzpour et al, 2023). By integrating both asset-and liability-sides balance sheet items in a single measure, we provide a more comprehensive assessment of the impact of IFRS-9, an aspect that has not been adequately addressed earlier.…”

Section: Prior Evidencementioning

confidence: 92%

IFRS-9, expected loan loss provisioning and bank liquidity creation: early evidence

Ghosh

2024

ARJ

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Purpose The relevance of both microeconomic and macroeconomic factors in driving banks’ liquidity creation within a cross-country setup has been addressed in prior research. The purpose of this study is to explore whether and how the recent International Financial Reporting Standards-9 (IFRS-9) accounting standards affect this relationship. Design/methodology/approach The author exploits the staggered implementation of IFRS-9 across countries and use a difference-in-differences framework to tease out the causal impact. Findings The findings indicate that the enactment of IFRS-9 leads to an increase in asset-side liquidity creation and a decline of broadly similar magnitude in liability-side liquidity creation. As a result, total liquidity creation remains unaltered. Disaggregatedly, the evidence shows that all the key channels on the asset and liability side are instrumental in explaining this behaviour. Originality/value The author views this as one of the early studies in a cross-country setup to explore the interlinkage between IFRS-9 and bank liquidity creation. Since liquidity creation measure provides a comprehensive metric of liquidity supplied by banks to the market, the study seeks to inform the policy debate on the role of these recently instituted accounting standards on bank liquidity behaviour.

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Section: Prior Evidencementioning

confidence: 92%

IFRS-9, expected loan loss provisioning and bank liquidity creation: early evidence

Ghosh

2024

ARJ

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“…Therefore, standard-setters' concerns might not be safeguarded, as the dynamic provisions present in this new model can potentially promote earnings management, impairing the transparency of financial statements (FASB-IASB 2009). Studies have shown mixed results regarding the impact of IFRS 9 on earnings management, with some indicating an increase in such practices, especially in less regulated environments (Nnadi et al 2023;Norouzpour et al 2023).…”

Section: Impact Of Dynamic Models On Economic Cycles Managementmentioning

confidence: 99%

Impacts of the Expected Credit Loss Model on Pro-Cyclicality, Earnings Management, and Equity Management in the Portuguese Banking Sector

Resende,

Carvalho,

Carmo

2024

JRFM

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This article delves into the pro-cyclicality of loan loss provisions (LLPs) and earnings management, along with equity management, in Portuguese banks against the backdrop of implementing the IFRS 9’s expected credit loss (ECL) model. It concentrates on how LLPs mirror economic cycles and financial management practices, providing valuable insights into the operational dynamics of the Portuguese banking sector, marked by distinct economic and regulatory challenges. The research examined a sample of five Portuguese commercial banks, chosen from a group of seventeen in the Portuguese Banking Association. Data spanning from 2013 to 2022 were manually gathered. A multiple linear regression model was employed to scrutinize the relationship between LLPs and variables indicative of economic cycles and the earnings and equity management. The methodology use was a multiple linear regression model. The analysis indicates a pro-cyclicality in LLPs within the Portuguese context, with a positive response of LLPs to economic indicators like unemployment. Contrarily, the extent of earnings and equity management under the ECL model was less marked compared to the incurred credit loss (ICL) model, suggesting the impact of more stringent regulatory measures. The research corroborates the pro-cyclicality of LLPs in Portuguese banks under the ECL framework, underscoring the necessity for ongoing monitoring and refinement of models for forecasting and recognizing credit losses. The findings point to an area for improvement in financial management practices, despite regulatory enhancements, to promote transparency and ensure financial stability.

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Managerial incentives and accounting quality: the role of ownership in banking

Gupta

2024

JAAR

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PurposeThe study investigates the influence of managerial discretion over accruals on banks' financial reporting quality. Furthermore, it examines the role of ownership in shaping managerial incentives to manipulate banks’ reporting quality in a developing economy.Design/methodology/approachThe sample includes 37 Indian public- and private-sector banks from the fiscal year 2001–2022. The discretionary LLP (DLLP) is used to examine various managerial incentives and accounting quality. The models are estimated using panel fixed-effect regression and the system generalized method of moments. The results survive several sensitivity checks.FindingsThe results exhibit a low quality of financial reporting in public-sector banks, which is evident through the higher use of DLLP for income smoothing and signaling. In contrast, the low-capitalized private-sector banks employ DLLP to manage capital.Research limitations/implicationsThe study’s sample size is relatively small and focuses on a single country. Future researchers can investigate other emerging economies to better generalize the findings of this study.Practical implicationsThe study highlights the influential role of ownership in shaping managerial incentives in the banking industry. Moreover, the study is of utmost importance for governments, regulators and policymakers in devising policies that reduce agency conflicts and improve financial stability in emerging economies.Originality/valueThe study subscribes to the growing literature on the role of ownership in influencing the banks’ financial reporting quality. To the best of the author’s knowledge, this is one of the limited studies in the context of government-owned vs private-owned banks in an emerging economy.

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IFRS 9, earnings management and capital management by European banks

Cited by 3 publications

References 33 publications

IFRS-9, expected loan loss provisioning and bank liquidity creation: early evidence

IFRS-9, expected loan loss provisioning and bank liquidity creation: early evidence

Impacts of the Expected Credit Loss Model on Pro-Cyclicality, Earnings Management, and Equity Management in the Portuguese Banking Sector

Managerial incentives and accounting quality: the role of ownership in banking

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