The effect of earnings management on bank efficiency: Evidence from ECB-supervised banks

Catarina Proença, Mário Augusto and José Murteira

Finance Research Letters, 2023, vol. 51, issue C

Abstract: This study investigates the impact of earnings management on the efficiency of Eurozone banks, examining its chronological evolution until the implementation of International Financial Reporting Standard 9. Using data on 70 banks, we find that earnings management, defined as discretionary loan loss provisions, negatively affects efficiency. Meanwhile, when we also include non-discretionary provisions (those required by legal obligations), we estimate a positive impact of loan provisions on allocative efficiency—contrarily to a negative effect of discretionary provisions. This finding helps stress the importance of adequately defining earnings management, namely for the purpose of analyzing its effect on banking efficiency.

Keywords: Bank efficiency; Earnings management; ECB; DEA (search for similar items in EconPapers)
JEL-codes: C14 C33 G21 G34 J16 (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:51:y:2023:i:c:s1544612322006274

DOI: 10.1016/j.frl.2022.103450

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