Loan Loss Recognitions and Systemic Risk In the Banking Industry

2012 ◽  
Author(s):  
Mary L. Ma ◽  
Gary C. Biddle ◽  
Yanyan Wang
Keyword(s):  
Systemic Risk ◽  
Banking Industry ◽  
Loan Loss

Earnings management and equity incentives: evidence from the European banking industry

2019 ◽  
Vol 27 (2) ◽  
pp. 244-261 ◽  
Author(s):  
Mohammad Alhadab ◽  
Bassam Al-Own
Keyword(s):  
Earnings Management ◽  
Management Practices ◽  
Banking Industry ◽  
Future Research ◽  
Loan Loss ◽  
Content Type ◽  
Loan Loss Provisions ◽  
Equity Incentives ◽  
European Banking ◽  
European Banks

Purpose This study aims to examine the effect of equity incentives on earnings management that occurs via the use of loan loss provisions by using a sample of 204 bank-year observations over the period 2006-2011. Design/methodology/approach The authors use the data of 39 European banks to test the main hypothesis. Several valuation models and regressions are used to measure the main proxies for executives’ compensation and the determinant factors of loan loss provisions. Findings The empirical results reveal that earnings management that occurs via discretionary loan loss provisions is associated with equity incentives in the banking industry. In particular, European banks’ executives with high equity incentives are found to manage reported earnings upwards by reducing loan loss provisions. The results therefore show that income-increasing earnings management via discretionary loan loss provisions is widely practised by the executives of European banks and that this is partly motivated by executives’ compensation. Practical implications The findings of this paper present important implications for regulators in the European Union, who should take further steps to reform the regulatory environment to monitor and mitigate the earnings management practices that occur via the manipulation of loan loss provisions. Earnings management practices do not just negatively affect subsequent performance but are also found to lead to firms’ failure. Thus, regulators should take the necessary reforms to protect the wealth of stakeholders (investors, creditors, etc.). Originality/value This study provides the first evidence on the relationship between equity incentives and earnings management in the European banking industry. The study sheds more light on an issue of great interest to a broad audience that does not receive much attention in the prior research, thus opening new avenues for future research.

scholarly journals Competitive Advantages of Shadow Banking Industry: An Analysis Using Porter Diamond Model

2015 ◽  
Vol 6 (2) ◽  
pp. 15 ◽  
Author(s):  
Arash Riasi
Keyword(s):  
Systemic Risk ◽  
Banking Industry ◽  
Banking System ◽  
Firm Strategy ◽  
The Other ◽  
Shadow Banking ◽  
Competitive Advantages ◽  
Diamond Model ◽  
Shadow Banking System ◽  
Global Financial System

<p>This paper tries to find out why shadow banking system has become so competitive in the global financial system and how it can be controlled. For this reason we use Porter’s diamond model to find the competitive advantages of shadow banking. Based on the results of this study it can be concluded that factor conditions, chance and government do not contribute to the competitiveness of shadow banking industry. On the other hand the results suggested that related and supporting industries, firm strategy, structure and rivalry, and demand conditions contribute to the competitiveness of shadow banking industry. It is important to regulate the activities of shadow banking industry in order to prevent this industry from creating systemic risk.</p>

scholarly journals Fair Value Accounting and Earnings Management Using LLP and Realized Gains and Losses: Study in Banking Industry Listed on Indonesia Stock Exchange

2018 ◽  
Vol 14 (2) ◽  
pp. 126-137
Author(s):  
Ice Maria Ulfa ◽  
Bambang Subroto ◽  
Zaki Baridwan
Keyword(s):  
Earnings Management ◽  
Empirical Evidence ◽  
Banking Industry ◽  
Stock Exchange ◽  
Fair Value ◽  
Fair Value Accounting ◽  
Loan Loss ◽  
Trade Off ◽  
Gains And Losses ◽  
The Impact

Abstract: Fair Value Accounting and Earnings Management Using LLP and Realized Gains and Losses: Study in Banking Industry Listed on Indonesia Stock Exchange. This study examines whether earnings management can be limited by the implementation of fair value accounting in banking industry. The main contribution of this study is  providing provide empirical evidence about the impact of fair value accounting on earnings management in Indonesia. Earnings management is proxied by loan loss provision (LLP), the realized of gains and losses, and the trade-off between realized gains and losses and LLP following Bratten et al (2013). The study provides empirical evidence that earnings management is still performed by banks, by using LLP, realized gains and losses and also occurs trade-off between LLP and realized gains and losses as means to perform earnings management in accordance with the needs of management. If banks are exposed to fair value accounting, managers will have more flexibility in reporting banks’ financial performance to present a desired earning, by  providing them with additional earning managements tools. These findings can be informative for policymakers, banking practitioners, and academics.  Keywords: earnings management, fair value accounting, LLP, realized gains and losses, trade-off LLP and realized gains and losses.Abstrak: Akuntansi Nilai Wajar dan Manajemen Laba menggunakan CKPN dan Realized Gains and Losses: Studi pada Industri Perbankan yang terdaftar di Bursa Efek Indonesia. Studi ini bertujuan untuk meneliti apakah manajemen laba dapat dibatasi oleh penerapan akuntansi nilai wajar dalam industri perbankan. Kontribusi dari penelitian ini adalah untuk memberikan bukti empiris tentang dampak penerapan akuntansi nilai wajar pada manajemen laba di Indonesia. Manajemen laba diproksikan oleh cadangan kerugian penurunan nilai (CKPN), realized of gains and losses, dan trade-off antara realized of gains and losses dan CKPN mengikuti model penelitian Bratten et al (2013). Studi ini memberikan bukti empiris bahwa manajemen laba masih dilakukan oleh bank menggunakan CKPN, realized of gains and losses dan juga terjadi trade-off antara CKPN dan realized of gains and losses sebagai sarana manajemen laba sesuai dengan kebutuhan manajemen. Konsekuensi dari paparan bank terhadap akuntansi nilai wajar dapat meningkatkan fleksibilitas manajer dalam melaporkan penghasilan yang diinginkan dengan memberikan mereka alat manajemen laba. Temuan-temuan tersebut dapat bersifat informatif bagi pembuat kebijakan, anggota industri perbankan, dan akademisi. Kata kunci: manajemen laba, akuntansi nilai wajar, CKPN, realized gains and losses, trade-off CKPN dan realized gains and losses.

Fair Value Exposure, Auditor Specialization, and Banks’ Discretionary Use of the Loan Loss Provision

2017 ◽  
Vol 35 (2) ◽  
pp. 318-348 ◽  
Author(s):  
Brian Bratten ◽  
Monika Causholli ◽  
Linda A. Myers
Keyword(s):  
Earnings Management ◽  
Banking Industry ◽  
Fair Value ◽  
Loan Loss ◽  
Management Behavior ◽  
Management Tools ◽  
Loan Loss Provision ◽  
Value Reporting ◽  
Auditor Specialization ◽  
Industry Specialist

In this study, we examine whether banks’ use of the loan loss provision (LLP) to manage earnings is associated with (a) the extent to which banks hold assets subject to fair value reporting and (b) the use of an industry specialist auditor. We find that banks with a greater proportion of assets subject to fair value reporting (i.e., higher fair value exposure) use less LLP-based earnings management but more transaction-based earnings management (i.e., earnings management achieved by timing the realization of gains/losses). We also find that banks engaging industry specialist auditors use less LLP-based earnings management. Our findings suggest that banks’ use of the LLP to manage earnings is more limited when they have access to alternative earnings management tools and when they engage an auditor with more industry knowledge. Our results should be informative to regulators, members of the banking industry, and academics interested in the earnings management behavior of banks.

Loan Loss Provisions and Earnings Management in Malaysian Banking Industry

2013 ◽  
Vol 1 (1) ◽  
pp. 93-104
Author(s):  
Hasni Abdullah ◽  
Imbarine Bujang ◽  
Ismail Ahmad
Keyword(s):  
Earnings Management ◽  
Commercial Banks ◽  
Global Financial Crisis ◽  
Banking Industry ◽  
Least Square ◽  
Capital Management ◽  
Loan Loss ◽  
Macroeconomic Factors ◽  
Ordinary Least Square ◽  
Loan Loss Provisions

Objective The main purpose of the study is to investigate the presence of earnings management incentive in affecting the LLP decision of commercial banks in Malaysia, focusing on the relation between loan loss provisions and earnings before tax and provisions. Methodology/Technique This study applies the pooled Ordinary Least Square model in assessing the determinants of the LLP. Findings The empirical findings clearly indicate that the LLP in Malaysian commercial banks is affected by earnings management for that particular period Type of Paper: Empirical paper Novelty : The expansion of the existing research in Malaysia in order to examine the extent to which the Malaysian banks engage in earnings and capital management, extends the period of investigation by considering the recent global financial crisis 2007-2009. Keywords: Loan Loss Provisions; Earnings Management; Capital Management; Macroeconomic Factors; Commercial Banks.

scholarly journals Policy uncertainty and loan loss provisions in the banking industry

2020 ◽  
Vol 25 (2) ◽  
pp. 726-777 ◽  
Author(s):  
Jeffrey Ng ◽  
Walid Saffar ◽  
Janus Jian Zhang
Keyword(s):  
Banking Industry ◽  
Policy Uncertainty ◽  
Loan Loss ◽  
Loan Loss Provisions
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