Loan-loss provisions, earnings management, and capital management by Russian banks: the impact of changes in banking regulation and oversight

Nikulin, Egor D.; Downing, Jeff

doi:10.1007/s40821-020-00163-9

Cited by 7 publications

(23 citation statements)

References 30 publications

Supporting

Mentioning

Contrasting

Unclassified

Order By: Relevance

“…compare the earnings management behaviour of public and private banks in the U.S. They find evidence for capital management but not for income smoothing Nikulin and Downing (2021). examine the use of LLP for earnings management and capital management before and after changes in banking regulation and oversight in Russia.…”

mentioning

confidence: 99%

Determinants of bank income smoothing using loan loss provisions in the United Kingdom

Ozili¹

2022

JEAS

View full text Add to dashboard Cite

PurposeThis paper examines the determinants of bank income smoothing using loan loss provisions in the United Kingdom or Great Britain from 1999 to 2017.Design/methodology/approachThe study used ordinary least square (OLS) regression and applying the HAC robust standard error correction test.FindingsThe findings showed that UK banks use loan loss provision for income smoothing purposes. Income smoothing is greater in times of high economic policy uncertainty. The extent of bank income smoothing is reduced by foreign bank presence, UK GAAP adoption, IFRS9 adoption, and high levels of voice and accountability. Also, there is reduced income smoothing using loan loss provisions during a financial crisis and in periods of economic prosperity.Research limitations/implicationsThe implication is that economic conditions, institutional governance and accounting disclosure rules can influence the extent of bank income smoothing in the United Kingdom. The findings of the study contribute to several studies that explore the determinants of bank income smoothing.Originality/valueNo study has extensively examined the determinants of bank income smoothing in Great Britain or the United Kingdom. The present study fills this gap in the literature.

show abstract

mentioning

confidence: 99%

Determinants of bank income smoothing using loan loss provisions in the United Kingdom

Ozili¹

2022

JEAS

View full text Add to dashboard Cite

show abstract

“…In the Italian context, Caporaleet al ( 2018) found that banks in Italy do not use DLLP to smooth earnings when dynamic provisioning approach was adopted in Italy. In Russia, an overhaul in regulation and supervision of Russian banks by Russian central bank is not found to bring about any improvement in the use of LLPs to smooth earnings and regulatory capital via LLPs as reported by Nikulin and Downing (2021). However, Nikulin and Downing's (2021) evidence of capital management by Russian banks in the post-reform regulation and Russian central bank's supervisory role is noticeable with private banks rather than State-owned banks.…”

Section: Managerial Discretions Loan Loss Provisions and Ifrssmentioning

confidence: 95%

“…Like accounting standards regime change, change in regulatory regime also provides rationale for empirical test of possible improved financial reporting quality subsequent to regulatory reforms as evident in loan loss accounting literature (Rosvold 2017;Chen et al 2021;Nikulin, Downing 2021). Therefore, relevant previous studies on how changes in accounting and regulatory reforms improve use of LLPs for managerial discretionary decisionsare reviewed.…”

Section: Managerial Discretions Loan Loss Provisions and Ifrssmentioning

confidence: 99%

“…Since LLPs account for larger proportion of bank accruals, using LLPs to adjust earnings upward or downward and hide true financial condition of their entities become easily attainable for bank managers. In the relevant literature, positive relationship between LLPs whether reported or discretionary and pre-tax and pre-LLPs earnings symbolizes use of LLPs to manage or smooth earnings (Schechtman, Takeda 2018;Muriu, Josea 2020;Nikulin, Downing 2021). From another perspective, higher LLPs might represent a higher exposure to non-performing assets and a means of reduction in bank profitability, it indeed encapsulates the ability of banks to absorb future losses or a sign of financial strength (Dushku 2016;Ozili, Outa 2017), in particular in case of unidentified threats.…”

Section: Introductionmentioning

confidence: 99%

“…Although financial reporting issues related to the use of LLPs to manage capital, smooth earnings and signal financial strength fall within the scope of bank managerial discretions (Soedarmono et al 2017;Pramono et al 2019), the conceptualisation of bank managerial discretion and its derivation using appropriate statistical technique is unique to this study. The index of discretionary attributes of bank management in loan loss decisions facilitates the reference to bank managerial discretions as a single measure as against separate earnings management, capital management and earnings signalling peculiar to previous studies including recent ones (Muriu, Josea 2020;Chen et al 2021;Le et al 2021;Nikulin, Downing 2021). Also, in the Nigerian context, the test of joint moderating influence of bank riskiness and adoption of IFRSs for the use of LLPs for various discretionary decisions is exclusive to this study compared to Ozili (2015), Eneje et al (2016), Atoyebi and Simon (2018) and Ozili and Outa (2019).…”

Section: Introductionmentioning

confidence: 99%

See 2 more Smart Citations

Managerial discretions and loan loss provisions in Nigerian banks

Salami

Uthman

Owoade

2022

CEREM

View full text Add to dashboard Cite

Aim: The high level of non-performing exposures and the existing crisis in the Nigerian banking sector is a source of concern. To create a basis for solving the troubles caused by the loan loss crisis, this study investigated the managerial discretionary use of loan loss provisions (LLPs) by Nigerian deposit money banks (DMBs). This is considered in the context of solvency risk and reforms embedded in the adoption of International Financial Reporting Standards (IFRSs). Design/research methods: Datasets related to the variables of the study were hand-collected from annual reports of a sample of 16 Nigerian deposit money banks over the period of 2007-2017. The analyses were performed using principal components analysis to derive the managerial discretions index (MDI), Prais-Winsten ordinary least square regression to segregate LLP into reported LLPs (TLLP) and discretionary LLPs (DLLP) and appropriate panel data regression models to test the study’s hypotheses subsequent to series of diagnostic tests. Conclusions/findings:The results revealed that managerial discretions negatively influence TLLP and DLLP represented by absolute value of DLLP (ADLLP). This represents an increase in profitability without manipulatingloan loss provisions. However, the reforms embedded in IFRSs revealed the use of LLPs for managerial discretions despite reduction in provisioning level noticeable during IFRS. The situation of Nigerian banks threatened by solvency risk use of LLPs for managerial discretions while attempting to increase profit was exemplified in the increase in ADLLP rather than TLLP. However, improvement was noticeable for risky Nigerian banks during IFRS. The managerial discretionary use of LLPs especially during IFRS was engendered by use of LLPs for capital management and earnings smoothing rather than earnings signalling as further revealed. This shows that adoption of International Financial Reporting Standards reduces reporting quality of Nigerian banks in their loan loss decisions. Originality/value of the article: The derivation of MDI from measures of earnings smoothing, capital management and earnings signalling is the study’s contribution to accounting for loan losses literature. The adjustments to LLPs to reduce variability of earnings, meet up with minimum regulatory bank capital adequacy ratio and signal strength to absorb future losses encapsulate earnings smoothing, capital management and earnings signalling respectively. Implications of the research:The discretionary use of LLPs found in this study beckons an increased level of surveillance, oversights and reforms on the part of the regulators for compliance level devoid of managerial opportunistic behaviour to be identifiablewith Nigerian banks. JEL: D22, G21, G28, L20, M41.

show abstract

Bank capital, earnings smoothing and provisioning practices in Nigeria: IFRS and risk evidence

Salami,

Uthman

2023

AJEB

View full text Add to dashboard Cite

PurposeThis study empirically tests the use of loan loss provisions (LLPs) for earnings and capital smoothing when emphasis is laid on banks' riskiness and adoption of the International Financial Reporting Standards (IFRSs) in Nigeria.Design/methodology/approachAnnual bank-level data are hand-extracted between 2007 and 2017 from annual reports of a sample 16 deposit money banks (DMBs), and analysed using appropriate panel regression models subsequent to a number of diagnostic tests including heteroscedasticity, autocorrelation and cross-sectional dependence. The use of both reported LLPs (TLLP) and discretionary LLPs (DLLP) for earnings and capital management is tested to advance the practice in the literature.FindingsGenerally, the study finds that Nigerian DMBs manage capital via LLPs, while mixed results are obtained for earnings smoothing. However, during IFRS, Nigerian DMBs' management of capital is identifiable with TLLP, while smoothing of earnings is peculiar to DLLP. Additionally, evidence of the improvement in loan loss reporting quality expected during IFRS for riskier Nigerian DMBs, could not be attained. This is corroborated by the study's findings of the use of both TLLP and DLLP for earnings and capital management during IFRS by DMBs in solvency crisis against the only use of TLLP to manage capital found for the entire period.Practical implicationsThe evidential capital and earnings lopsidedness may subject Nigerian DMBs' going-concern to a lot of questions.Originality/valueThe study sets a foremost record in the empirical test of managerial opportunistic behaviour embedded in earnings and capital concurrently while accounting for loan losses by all categories of Nigerian DMBs in terms of riskiness, following accounting regime change.

show abstract

Loan-loss provisions, earnings management, and capital management by Russian banks: the impact of changes in banking regulation and oversight

Cited by 7 publications

References 30 publications

Determinants of bank income smoothing using loan loss provisions in the United Kingdom

Determinants of bank income smoothing using loan loss provisions in the United Kingdom

Managerial discretions and loan loss provisions in Nigerian banks

Bank capital, earnings smoothing and provisioning practices in Nigeria: IFRS and risk evidence

Contact Info

Product

Resources

About