Mandatory disclosure and bank earnings management in India

Soumik Bhusan, Ajit Dayanandan and G. Naresh

Emerging Markets Review, 2024, vol. 62, issue C

Abstract: The study examines how mandatory disclosures impact banks' earnings management in India. The Reserve Bank of India (RBI) enforced disclosures fearing underdeclaration of non-performing assets (NPA) and attributable loan loss provision (LLP). In a way, such disclosure requirement was a “name and shame” strategy by the RBI. Our study hypothesizes disclosures to reduce information asymmetry and moral hazard - in a way reflected in the discretionary LLP. The results broadly support our hypothesis that regulatory enforcement through disclosures had the intended effect of hamstringing the banks' ability to manage earnings. Thus, mandatory disclosures positively affect discretionary LLP reduction, consequently minimizing the latitude that banks enjoy.

Keywords: Earnings management; Market discipline; Banking regulations; Transparency; Emerging markets (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ememar:v:62:y:2024:i:c:s1566014124000827

DOI: 10.1016/j.ememar.2024.101187

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