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Earnings Management, Capital Management and Signalling Behaviour of Indian Banks

Author

Listed:
  • Sushma Vishnani

    (Jaipuria Institute of Management)

  • Sonu Agarwal

    (Jaipuria Institute of Management)

  • Ritika Agarwalla

    (Jaipuria Institute of Management)

  • Saumya Gupta

    (Jaipuria Institute of Management)

Abstract

The study aims at analysing whether the earnings are managed in the banking industry in India considering the provisioning standards issued by the RBI. The study also examines the presence of capital management and signalling practices by Indian Banks through the usage of Provision for Non-Performing Assets (PNPA). The study comprises of 84 banks in India which includes nationalised banks, private banks and foreign banks focusing on financial data from FY 2005–2016. The study uses panel data regression model for exploring the presence of earnings management, capital management and signalling. The dependent variable considered is PNPA and the independent variables are lag of dependent variable, return on assets, capital adequacy ratio, and change in operating profit. We have also included certain control variables viz. credit deposit ratio, total assets, closing gross NPA, GDP, real interest rates. The results of our study indicates income smoothing practices by Indian Banks. However, the results do not prove the presence of capital management or signalling practices by Indian Banks through the usage of provision for NPA.

Suggested Citation

  • Sushma Vishnani & Sonu Agarwal & Ritika Agarwalla & Saumya Gupta, 2019. "Earnings Management, Capital Management and Signalling Behaviour of Indian Banks," Asia-Pacific Financial Markets, Springer;Japanese Association of Financial Economics and Engineering, vol. 26(3), pages 285-295, September.
    • Handle: RePEc:kap:apfinm:v:26:y:2019:i:3:d:10.1007_s10690-018-09265-x
    DOI: 10.1007/s10690-018-09265-x
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    References listed on IDEAS

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    Cited by:

    1. Tram-Anh Nguyen & Phu Ha Nguyen & Hiep Ngoc Luu & Trang Nguyen Ha Cu & Phuong-Anh Nguyen, 2023. "Bank provisioning practice during the pandemic: evidence from the COVID-19 outbreak," International Journal of Disclosure and Governance, Palgrave Macmillan, vol. 20(3), pages 248-260, September.
    2. Ozili, Peterson K, 2021. "Banking sector earnings management using loan loss provisions in the Fintech era," MPRA Paper 105083, University Library of Munich, Germany.
    3. Ozili, Peterson K, 2019. "Bank Income Smoothing, Institutions and Corruption," MPRA Paper 92339, University Library of Munich, Germany.
    4. Deepa Mangala & Neha Singla, 2021. "Quality of Reported Earnings: An Empirical Study of Indian Banking Industry," Vision, , vol. 25(2), pages 159-167, June.
    5. Salem, Rami & Usman, Muhammad & Ezeani, Ernest, 2021. "Loan loss provisions and audit quality: Evidence from MENA Islamic and conventional banks," The Quarterly Review of Economics and Finance, Elsevier, vol. 79(C), pages 345-359.
    6. Albulena Shala & Valentin Toçi & Skender Ahmeti, 2020. "Income smoothing through loan loss provisions in south and Eastern European banks," Zbornik radova Ekonomskog fakulteta u Rijeci/Proceedings of Rijeka Faculty of Economics, University of Rijeka, Faculty of Economics and Business, vol. 38(2), pages 429-452.
    7. Boahen, Eric O. & Mamatzakis, Emmanuel C., 2021. "What are the effects of culture and institutions on classification shifting in India?," Journal of International Accounting, Auditing and Taxation, Elsevier, vol. 44(C).
    8. Ozili, Peterson K., 2019. "Bank income smoothing, institutions and corruption," Research in International Business and Finance, Elsevier, vol. 49(C), pages 82-99.

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