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Prudential Regulatory Regimes, Accounting Standards, And Earnings Management In The Banking Industry

Author

Listed:
  • Ali Ashraf

    (Frostburg State University)

  • M. Kabir Hassan

    (University of New Orleans)

  • Kyle J. Putnam

    (Linfield College)

  • Arja Turunen-Red

    (University of New Orleans)

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.

Suggested Citation

  • Ali Ashraf & M. Kabir Hassan & Kyle J. Putnam & Arja Turunen-Red, 2019. "Prudential Regulatory Regimes, Accounting Standards, And Earnings Management In The Banking Industry," Bulletin of Monetary Economics and Banking, Bank Indonesia, vol. 21(3), pages 367-394, January.
    • Handle: RePEc:idn:journl:v:21:y:2019:i:3e:p:367-394
    DOI: https://doi.org/10.21098/bemp.v21i3.975
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    More about this item

    Keywords

    Accounting Standard; Banks; Loan Loss Provision;
    All these keywords.

    JEL classification:

    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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