The relation between auditor reputation, earnings and capital management in the banking sector: An international investigation

Chris Magnis and George Emmanuel Iatridis

Research in International Business and Finance, 2017, vol. 39, issue PA, 338-357

Abstract: In this study we examine two types of manipulation: earnings and capital management (or capital adequacy management) in banks, using an international sample of banks from four countries (USA, UK, Germany and France), which in couples belong in common financial systems (two common – law countries and two code – law countries). In specific, we examine the implications of two aspects of auditor reputation, auditor type and auditor industry specialization, for earnings management via the manipulation of the earnings benchmark. We prove that different aspects of auditor reputation per financial system restrict the motivation of managers for earnings manipulation. Furthermore, we examine the levels of the earnings and capital management in banks by separating our research period in the pre – Basle II regime and the post – Basle II regime. We prove that in the post – Basle II period the banks per financial system limit earnings and capital adequacy management. Moreover, we examine the effects of auditor reputation both in earnings and capital management by using the same model taking into account the financial crisis of 2008 with the results of this (expanded) research to be highly interesting for each financial system.

Keywords: Earnings management; Capital adequacy management; Auditor’s reputation; Auditor’s expertise; Earnings benchmark; Loan loss provisions; Basle II; Financial crisis (search for similar items in EconPapers)
JEL-codes: C23 G14 G21 M40 M41 M42 (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:riibaf:v:39:y:2017:i:pa:p:338-357

DOI: 10.1016/j.ribaf.2016.09.006

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