PRUDENTIAL REGULATORY REGIMES, ACCOUNTING STANDARDS, AND EARNINGS MANAGEMENT IN THE BANKING INDUSTRY

Ali Ashraf, M. Kabir Hassan, Kyle J. Putnam and Arja Turunen-Red
Additional contact information
Ali Ashraf: Frostburg State University
Kyle J. Putnam: Linfield College
Arja Turunen-Red: University of New Orleans

Bulletin of Monetary Economics and Banking, 2019, vol. 21, issue 3, 367-394

Abstract: We analyze if a change in accounting standard or a change in prudential regulation impacts banks’ loan loss provision. We find that, in general, the banks using a principles-based accounting standard exhibit a lower level of earnings management compared to banks using a rules-based accounting standard. When a country moves from pro-cyclical macro-prudential regulations to a dynamic provisioning regime, banks are more likely to set aside a larger amount of loan loss provision for the purpose of income smoothing.

Keywords: Accounting Standard; Banks; Loan Loss Provision (search for similar items in EconPapers)
JEL-codes: E58 G21 G28 (search for similar items in EconPapers)
Date: 2019
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Persistent link: https://EconPapers.repec.org/RePEc:idn:journl:v:21:y:2019:i:3e:p:367-394

DOI: 10.21098/bemp.v21i3.975

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