Watch out for bailout: TARP and bank earnings management

Fan, Yaoyao; Huang, Yichu; Jiang, Yuxiang; Liu, Frank Hong

doi:10.1016/j.jfs.2020.100785

Cited by 8 publications

(5 citation statements)

References 97 publications

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“…This could suggest that when banks are audited by the Big-4, the tendency is to manage earnings downwards instead of upwards. This is consistent with Fan et al (2020) that, by their nature, banks are under more and stricter monitoring by the government and could be under compensation restrictions, thus discouraging banks from upwards manipulation of earnings. Consequently, there is evidence that European banks smooth income by manipulating LLP downward when audited by the Big-4 auditors.…”

Section: Presentation Of Results and Discussion Of Findingssupporting

confidence: 89%

IFRS 9 and earnings management: the case of European commercial banks

Nnadi

Keskudee

Amaewhule

2023

IJAIM

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Purpose This paper examines the impact of International Financial Reporting Standards (IFRS) 9 on earnings management (EM) using data from 2011 to 2019 of 100 commercial banks in Europe. Design/methodology/approach Using data from 2011 to 2019 of 100 commercial banks in Europe, the authors conducted several empirical investigations to test the mediating role of IFRS 9 on earnings manipulation through loan loss provision (LLP) by banks. Findings The result shows that the new accounting standards (IFRS 9) significantly affect the way banks report LLP. This paper provides evidence that non-listed banks in the EU engage in EM through LLP following IFRS 9 but experience less volatility of net income following the adoption. The findings indicate that such behaviour by banks cannot be suppressed by level of audit quality; suggesting that an improvement in accounting standards might not always guarantee accounting quality. Originality/value This finding has some policy implications; and regulators will need to identify additional tools to regulate or supervise EM behaviour.

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Section: Presentation Of Results and Discussion Of Findingssupporting

confidence: 89%

IFRS 9 and earnings management: the case of European commercial banks

Nnadi

Keskudee

Amaewhule

2023

IJAIM

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“…In contrast, TARP banks that retained their CEOs showed a significant increase in CEO pensions, a form of post-TARP executive compensation. Finally, Fan et al (2020) found a significantly positive impact of TARP on the earnings management of recipient banks, compared with their non-recipient peers. Their finding supports the benefits of tighter regulations following corporate scandals.…”

Section: Literature Reviewmentioning

confidence: 86%

Stockholder Wealth Maximization during the Troubled Asset Relief Program Period: Is Executive Pay Harmful?

Junarsin,

Pelawi,

Pelawi

et al. 2024

JRFM

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This study investigates governance mechanisms and their relation to firm value, i.e., executive compensation restrictions during the regulatory period and their effects on the performance of firms that received Troubled Asset Relief Program (TARP) funds. We employ an event study to investigate the market reactions for TARP recipients, followed by OLS regression to examine the stock return effects of 10 announcements. For comparison, we also employ a multivariate regression model (MVRM) based on a system of equations with seemingly unrelated regressions (SURs). Our evidence shows that changes in firm value have a negative and significant relationship with changes in total compensation for TARP companies that have paid back their debts to the government. However, the relationship is weaker than that for TARP companies that have not paid back the bailout money.

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“…Previous studies have examined the external factors that encourage bank earnings management such as changes in prudential regulation (Lim and Yong, 2017), changes in accounting rules (Kilic, et al , 2013), crisis resolution policies (Fan et al , 2020) and Fintech competition (Ozili, 2022a). Other studies have identified accounting numbers that bank managers might use to manage reported earnings such as available for sale securities and loan loss provisions (LLPs; Curcio and Hasan, 2015; Barth et al , 2017).…”

Section: Introductionmentioning

confidence: 99%

“…Previous studies have examined the external factors that encourage bank earnings management such as changes in prudential regulation (Lim and Yong, 2017), changes in accounting rules (Kilic, et al, 2013), crisis resolution policies (Fan et al, 2020) and Fintech Peterson K. Ozili is based at the Governors Department, Central Bank of Nigeria, Abuja, Nigeria. competition (Ozili, 2022a).…”

Section: Introductionmentioning

confidence: 99%

Central bank digital currency and bank earnings management using loan loss provisions

Ozili¹

2023

DPRG

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Purpose This paper aims to analyse the role of central bank digital currency (CBDC) in bank earnings management and focus on how CBDC activity might influence banks to engage in accrual earnings management using loan loss provisions (LLPs) and the implications for earnings quality. Design/methodology/approach The paper used conceptual discourse analysis to explain the role of CBDC in bank earnings management. Findings Banks will use accruals, such as LLPs, to manage earnings when CBDC-induced bank disintermediation leads to a reduction in bank deposits, a reduction in bank lending and a likely reduction in reported earnings. Bank managers will mitigate the reduction in reported earnings by lowering discretionary LLPs to increase reported earnings. Originality/value The recent emergence of CBDC in the digital currency universe has led to increased research interest on the role of CBDC in corporations and society. This study contributes to the literature by focusing on banks, and examining the effect of CBDC on bank earnings management.

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Watch out for bailout: TARP and bank earnings management

Cited by 8 publications

References 97 publications

IFRS 9 and earnings management: the case of European commercial banks

IFRS 9 and earnings management: the case of European commercial banks

Stockholder Wealth Maximization during the Troubled Asset Relief Program Period: Is Executive Pay Harmful?

Central bank digital currency and bank earnings management using loan loss provisions

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