Auditor Reputation and Earnings Management: International Evidence from the Banking Industry

Kanagaretnam, Kiridaran; Lim, Chee Yeow; Lobo, Gerald J.

doi:10.2139/ssrn.1533855

Cited by 85 publications

(179 citation statements)

References 36 publications

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“…Beatty et al (2002), Graham, Harvey, and Rajgopal (2005), Altamuro and Beatty (2010), and Kanagaretnam et al (2010;2011; found that managers can manage earnings to just meet or beat prior period's earnings or to avoid loss (Burgstahler & Dichev, 1997;Kanagaretnam et al, 2010;.…”

Section: Measures Of Earnings Managementmentioning

confidence: 99%

Auditor Reputation, Audit Opinion, and Earnings Management: Evidence From French Banking Industry

Hadriche¹

2015

JMAA

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The aim of this research is to study the impact of auditor reputation and audit opinion on earnings management in French banks. This article used a sample of 162 French banks over the period from 2005 to 2012. By using three different tests (loss-avoidance, just-meeting-or-beating prior year's earnings, and abnormal loan loss provision), the findings of this paper show that both high auditor reputation and qualified audit opinion constrain earnings management to avoid loss or to just meet or beat prior year's earnings in banks. In separate tests related to earnings management through abnormal loan loss provisions, the paper also finds that high auditor reputation constrains earnings management. Qualified audit opinion has a negative but non-significant effect on abnormal loan loss provisions.

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Section: Measures Of Earnings Managementmentioning

confidence: 99%

Auditor Reputation, Audit Opinion, and Earnings Management: Evidence From French Banking Industry

Hadriche¹

2015

JMAA

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“…To support this point of views we highlight some studies: Kanagaretnam et al (2010) in their multi-country study using a sample of 29 countries between the periods from 1993 to 2006 to investigate the relation between auditor reputation and earnings management in banks sector; they provide evidence that managers do income smoothing through LLP. In contrast, Perez et al (2008) examine the impact of earnings management and capital management through LLP in Spanish banks and provide evidence for income smoothing activities in Spanish banks from 1986 to 2002 using 142 banks.…”

Section: Llp and Income Smoothing Hypothesismentioning

confidence: 97%

“…In addition, the researchers investigated the use of LLP to smoothing income and documents different findings such as Kanagaretnam et al (2004); Anandarajan et al (2007); Perez et al (2008); Fonseca and Gonzalez (2008) and Kanagaretnam et al (2010). Also, recent banking literature provide evidence of using LLP to income smoothing such as Leventis et al (2012); El Sood (2012); Kilic et al (2013); Curcio and Hasan (2013); Bouvatier at al.…”

Section: Introduce the Problemmentioning

confidence: 99%

Loan Loss Provisions, Income Smooth, Signaling, Capital Management and Pro-Cyclicality. Empirical Evidence from Mozambique’s Commercial Banks

Siueia¹,

Wang²

2017

IJEF

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The aim of this study is to provide the first empirical evidence of income smoothing, capital management, signaling, and pro-cyclical behavior through loan loss provisions (LLP) for Mozambican commercial Banks, an example of the under-developed country. A second goal is to understand the bank lending behavior during the Mozambique's hidden public debt crisis. The sample consists of all commercial banks observed during 2010-2016. We provide strong evidence that Mozambican commercial banks are pro-cyclical through LLP and these banks engage in income smoothing activity. However, for capital management activity and signaling behavior, we provide insignificant evidence to support these hypotheses among Mozambican commercial banks via LLP. Also, the result indicates that Mozambique's hidden public debt crisis, the commercial banks put aside more provisions.

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“…Prior literature has also documented that managers use their discretion in estimating loan loss provisions for opportunistic reasons, such as meeting or beating a benchmark (Beatty et al 2002;Kanagaretnam et al 2010b), and increasing income (Kanagaretnam et al 2010a). In particular, Beatty et al (2002) and Kanagaretnam et al (2010b) report that bank managers have incentives to manage earnings for benchmark beating, such as avoiding small losses and just meeting or beating the prior year's earnings.…”

Section: H1b: Abnormal All In the Pre-crisis Period Is Unrelated To Bmentioning

confidence: 99%

“…In particular, Beatty et al (2002) and Kanagaretnam et al (2010b) report that bank managers have incentives to manage earnings for benchmark beating, such as avoiding small losses and just meeting or beating the prior year's earnings. Both the incentive to engage in opportunistic earnings management using loan loss accounting and the prior evidence documenting such behavior are in direct conflict with the goal of transparency in banks' financial reporting.…”

Section: H1b: Abnormal All In the Pre-crisis Period Is Unrelated To Bmentioning

confidence: 99%

Discretion in Bank Loan Loss Allowance, Risk Taking, and Earnings Management

2015

Self Cite

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We study whether bank managers' use their discretion in estimating the allowance for loan losses (ALL) for efficiency or for opportunistic reasons. We do so by examining whether the use of this discretion relates to bank stability and bank risk taking, or whether it relates to earnings management to meet or beat earnings benchmarks. We find that banks that had higher abnormal ALL during the period prior to the 2007-2009 financial crisis engaged in less risk taking during the pre-crisis period and had a lower probability of failure during the crisis period. In tests related to earnings management to meet or beat earnings benchmarks, we find that abnormal ALL is unrelated to next period's loss avoidance and just meeting or beating the prior year's earnings. Our results suggest that bank managers use their discretion over ALL for efficiency and not for opportunistic purposes. They inform policy makers and accounting standard setters on banks' use of accounting discretion as a means to build a cushion against future credit losses as they transition from the incurred loss model to the expected loss model for loan loss accounting.

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Auditor Reputation and Earnings Management: International Evidence from the Banking Industry

Cited by 85 publications

References 36 publications

Auditor Reputation, Audit Opinion, and Earnings Management: Evidence From French Banking Industry

Auditor Reputation, Audit Opinion, and Earnings Management: Evidence From French Banking Industry

Loan Loss Provisions, Income Smooth, Signaling, Capital Management and Pro-Cyclicality. Empirical Evidence from Mozambique’s Commercial Banks

Discretion in Bank Loan Loss Allowance, Risk Taking, and Earnings Management

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