Management of abnormal accounting accruals through the regulatory approach of credit risk: Evidence in the MENA countries' banks before and after the Arab Spring Revolution

Mohamed Sadok Gassouma

Journal of Applied Finance & Banking, 2019, vol. 9, issue 3, 4

Abstract: This article examines the effect of credit risk and its regulatory measures on accounting manipulation in 202 banks in the 10 MENA countries. Such a deviation from the regulatory requirements may lead managers to smooth the accounting net income, by applying the "fair full value" method as an accounting method. The purpose of this study is to estimate abnormal accruals using the classical Kothari et al (2005) [11] model and to see their progress before the Arab spring revolution (2000-2010) and after (2011-2014) using the “Difference-in-difference†approach. Second, we propose a linear model, testing the relationship between the abnormal accruals and the credit risk factors. The results show that after the Spring Arab revolution, banks in the MENA countries changed their attitudes towards credit risk. Possible overcapitalization of banks, leads managers to manipulate the credit portfolios values, in order to divert the risk level downwards and disclose false beliefs to the market, in the presence of the prudential supervision deterioration and information asymmetry towards shareholders despite any the legal restructuring. JEL classification numbers: G21, G01, G32, M41.Keywords: Abnormal accruals, credit risk, banking, difference-in-difference.

Date: 2019
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