Earning Management and the Likelihood of Financial Distress in Banks — Evidence from Pakistani Commercial Banks

Amina Malik, Shahab Ud Din, Muhammad Shafiq, Babar Zaheer Butt and Haroon Aziz

Public Finance Quarterly, 2019, vol. 64, issue 2, 208-221

Abstract: This research studies the relationship between financial distress (FD) and usage of discretion by employing earning management practices in twenty commercial banks of Pakistan, listed at Pakistan Stock Exchange (PSX). The study utilizes the data spread over from the year 2010 to 2015. Altman Z-Score has been employed to assess financial distress. Further, the value of Z-score has been used for the classification of banks into distressed and non-distressed banks. Moreover, earning management has also been categorized into non-discretionary (NDA) and discretionary accruals (DA). The logistic approach has been used to study the relationship among variables. The findings reveal that banks use non-discretionary and discretionary accruals to manage their financial distress. This research study provides useful insights for investors, auditors and regulators as it identifies usage of specific provisions by management despite strict regulations.

Keywords: Earning Management; Financial distress; Discretionary accruals; Z-Score (search for similar items in EconPapers)
JEL-codes: C33 G21 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://unipub.lib.uni-corvinus.hu/8693/ (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:pfq:journl:v:64:y:2019:i:2:p:208-221

Access Statistics for this article

More articles in Public Finance Quarterly from Corvinus University of Budapest Contact information at EDIRC.
Bibliographic data for series maintained by Adam Hoffmann ().