Profit status of microfinance institutions and incentives for earnings management

Rodrigo Leite, Layla dos Santos Mendes and Rafael de Lacerda Moreira

Research in International Business and Finance, 2020, vol. 54, issue C

Abstract: We theorize that for-profit microfinance institutions (MFIs) have higher incentives to use earnings management techniques when compared to their not-for-profit counterparts. Indeed, we show empirically that, when facing a distress period, for-profit MFIs are more likely to recognize impairment loan loss provisions than not-for-profit ones in about 0.8% of assets. This is consistent with the notion that those institutions are employing “big bath” accounting practices. Finally, using the 2008 crisis as an exogenous shock and country-level recessions as an exogenous measure of distress, we replicate our results.

Keywords: Microfinance; Earnings management; Impairment provisions (search for similar items in EconPapers)
JEL-codes: G01 G15 G21 M41 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:riibaf:v:54:y:2020:i:c:s0275531919311201

DOI: 10.1016/j.ribaf.2020.101255

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