Regulatory Capital Management to Exceed Thresholds

Orozco, Luciana; Rubio, Silvina

doi:10.2139/ssrn.3234652

Cited by 8 publications

(5 citation statements)

References 63 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…We include banks’ Tier 1 capital ratio ( CET1 ) to test for the possibility that it is harder to define earnings for riskier banks (for instance, if banks are more prone to engage in classification shifting when close to regulatory thresholds as per Orozco & Rubio, 2021). We conjecture that banks with higher net interest income tend to have less opaque earnings and thus require fewer adjustments by analysts.…”

Section: Methodsmentioning

confidence: 99%

Disagreement about the past: An empirical assessment of bank analysts' GAAP and non‐GAAP earnings measures

Clatworthy

Zhu

2022

Business Fin & Account

View full text Add to dashboard Cite

Prior research documents that analysts' non-Generally Accepted Accounting Principles (non-GAAP) or "street earnings" exclude transitory items in order to facilitate security valuation. We study sell-side analysts' reports for large European banks and find significant variation in analysts' non-GAAP actual earnings measures. These measures are not always easily reconcilable to firms' reported non-GAAP earnings, to GAAP earnings or to non-GAAP earnings reported by Institutional Brokers Estimate System (I/B/E/S). By contrast, reported measures of GAAP earnings in analysts' reports differ from one another (or from firms' reported GAAP earnings) far less often. When evaluated against analysts' own actual non-GAAP earnings measures, forecasts appear more accurate than those based on I/B/E/S actuals. Results for GAAP earnings are less conclusive. Our results indicate that as well as disagreeing about future earnings, analysts also disagree significantly about what earnings were in the past.

show abstract

Section: Methodsmentioning

confidence: 99%

Disagreement about the past: An empirical assessment of bank analysts' GAAP and non‐GAAP earnings measures

Clatworthy

Zhu

2022

Business Fin & Account

View full text Add to dashboard Cite

show abstract

“…Stice et al (2022) examine frequency distributions of revenues and test for discontinuities around base-ten thresholds. Orozco and Rubio (2022) examine discontinuities in the distribution of regulatory capital to test whether banks manage this to exceed thresholds imposed by the Federal Deposit Insurance Corporation Act of 1991. Therefore, these strands of research would benefit from the proposed alternative methodology.…”

Section: Detecting Earnings Managementmentioning

confidence: 99%

An alternative approach to detect earnings management to meet or beat benchmarks

Degiannakis

Giannopoulos²,

Ibrahim³

et al. 2022

JAL

View full text Add to dashboard Cite

PurposeThe authors propose an alternative robust technique to test for discontinuities in distributions and provide consistent evidence of discontinuities around zero for both scaled and unscaled earnings levels and changes. The advantage of the proposed test is that it does not rely on arbitrary choice of bin width choices.Design/methodology/approachTo evaluate the power of the test, the authors examine the density function of non-discretionary earnings and detect no evidence of discontinuities around zero in levels and changes of these non-discretionary earnings. As robustness, the authors use pre-managed earnings excluding accrual and real manipulation and find similar evidence.FindingsThe finding using our technique support the Burgstahler and Dichev (1997) interpretation on earnings management, even for smaller sample sizes and reject the theory that discontinuities arise from scaling and sampling methods.Originality/valueThe study provides an overview of those studies that support and those that oppose using “testing for discontinuities” as a way to examine earnings management. The authors advance the literature by providing an alternative methodology supporting the view that the kink in the distribution represents earnings management.

show abstract

“…Several studies focus specifically on the capital management incentive and provide evidence showing that U.S. bank managers have exercised discretion over accounting provisions to manage regulatory capital, both before (Moyer 1990, Beatty et al 1995 and after the Basel accords (Ahmed et al 1999). In a recent paper, Orozco and Rubio (2021) show that accounting discretion used to manage regulatory capital by US commercial banks has detrimental effects on bank stability. However, studies using European data tend not to observe such opportunistic behaviour (e.g.…”

Section: Opportunistic Determinants Of Cta Adoptionmentioning

confidence: 99%

Moving toward the expected credit loss model under IFRS 9: capital transitional arrangement and bank systematic risk

Dong

Oberson

2021

Accounting and Business Research

View full text Add to dashboard Cite

This paper examines banks' option to adopt the capital transitional arrangement (CTA) set out by the Basel Committee on Banking Supervision, in response to the introduction of the International Financial Reporting Standard 9 (IFRS 9), which requires the use of an expected credit loss model instead of an incurred loss model to estimate the impairment of financial assets. Using a sample of publicly listed European banks from 2016 to 2019, we find that bank CTA adoption choice is associated with neutral factors captured by bankspecific fundamental characteristics, and potential opportunistic factors related to regulatory constraints implied by the application of IFRS 9. We further find that banks that adopted the CTA (CTA adopters) decrease their exposure to systematic risk during the transitional period. However, this relationship is only significant in countries with powerful banking authorities. In those with less powerful banking authorities, CTA adopters tend to exercise more aggressively their accounting discretion. Our study is the first to address banks' voluntary choice to adopt the CTA policy under the mandatory application of IFRS 9.

show abstract

Regulatory Capital Management to Exceed Thresholds

Cited by 8 publications

References 63 publications

Disagreement about the past: An empirical assessment of bank analysts' GAAP and non‐GAAP earnings measures

Disagreement about the past: An empirical assessment of bank analysts' GAAP and non‐GAAP earnings measures

An alternative approach to detect earnings management to meet or beat benchmarks

Moving toward the expected credit loss model under IFRS 9: capital transitional arrangement and bank systematic risk

Contact Info

Product

Resources

About