Earnings quality (EQ) is an indicator generally defined as a mix of many components like persistence, predictability, volatility and smoothing of earnings. This study is based on the hypothesis that in the banking sector, any changes in interest rates make a remarkable effect on these characteristics of earnings, and thus may influence EQ. Between 2007 and 2015, there has been a general decreasing trend in interest rates across Europe, with varying slopes in different countries. Using data of 128 European banks from 27 countries, it is examined how the extent of interest rate decrease influenced the EQ of banks. It was found that the extent of interest decrease negatively affects earnings quality, meaning that the EQ of banks located in countries with less drastic relative interest cuts between 2007 and 2015 (typically less developed Central and Eastern European countries) is higher than the EQ of banks from developed countries with significant relative interest cuts in the same period.
The crisis demonstrated that the role of the accounting standards applicable to fair valuation may be particularly important in the credit institution sector. The paper examines the influence exerted on the balance sheets of the Hungarian credit institutions by the fair valuation and the international and the Hungarian economic policy regulatory changes relating to valuation. We place special emphasis on examining whether the foreign-owned credit institution subsidiaries operating in Hungary and their parent banks responded differently to the challenges posed by the crisis. We elaborated a method for the measurement of the real involvement and using this we examine how the fair value involvement of the Hungarian credit institution sector has changed before, during and after the crisis. Generalising the problem, we found that the degree of the fair value involvement may represent an additional risk factor upon assessing the credit institutions' operational efficiency and that the Hungarian subsidiaries followed a slightly different path than their parent banks.
Following the financial crisis, the set of rules governing international accounting needed to be reshaped so that financial disturbance could be predicted in future. As of 1 January 2018, IFRS 9 specified how financial instruments should classify and measure and how impairment should be recognised. In this paper our objective has been to identify IFRS 9 financial statement figures significantly affecting the market rate of financial institutions. We have found that the market was more affected by the volume of financial instruments and impairments than by their evolution in time.
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