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Loan Loss Provisions Earnings Management Pattern under Gaap and Ifrs: A Case of Malaysian and Nigerian Banks

Ugbede Onalo, Mohd Lizam and Ahmad Kaseri
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Ugbede Onalo: Accountancy Department, School of Business Studies, Federal Polytechnic, Idah, Kogi State, Nigeria
Mohd Lizam: Faculty of Technology Management, Universiti Tun Hussein Onn Malaysia
Ahmad Kaseri: Faculty of Technology Management, Universiti Tun Hussein Onn Malaysia

Abstract of Economic, Finance and Management Outlook, 2016, vol. 6, 4

Abstract: The compulsory adoption of International Financial Reporting Standards (IFRS) by European Union firms’ beginning from 1st January 2005 has attracted several studies on the impact of its adoption on accounting quality of particularly, manufacturing/sales-based firms in the context of earnings management and value relevance of accounting information. However, this study distinctively investigate loan loss provisions (LLP) earnings management pattern under GAAP and IFRS for both Malaysian and Nigerian banks. This study used all Malaysian and Nigerian conventional banks and panel data were collected for a period of 6 (2008-2013) years. Basically, multiple regression analyses were performed to evaluate earnings management pattern via LLP under the two reporting regimes. Results demonstrated that regardless of reporting regimes, both Malaysian and Nigerian banks engaged in income or earnings minimization earnings management pattern via LLP. Interestingly, whereas, Malaysian banks were associated with significant practice of income minimization LLP earnings management pattern before IFRS adoption, though not significant, Nigeria banks engaged more in income minimization LLP earnings management pattern after IFRS adoption. In other words, while IFRS adoption reduces the practice of earnings management pattern of income minimization via LLP for Malaysian banks, opposite holds for Nigerian banks. Overall, irrespective of reporting periods, the practice of earnings management pattern of income minimization via LLP was more intensified for Nigerian banks than Malaysian banks. Findings suggest concern for country’s specific compliance and enforcement level of IFRS vis-a-vis corporate governance.

Date: 2016
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