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Banking reform, risk-taking, and earnings quality – Evidence from transition countries

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  • Fang, Yiwei
  • Hasan, Iftekhar
  • Li, Lingxiang

Abstract

​The dynamic banking reforms of Central and Eastern Europe (CEE) following the collapse of the Soviet Union provide an ideal research setting for examining the causal effect of institutional development on financial reporting. Using five earnings quality measures, we consistently find that banking reform improves accounting quality and reduces earnings management incentives in the 16 transition countries considered. The results strongly hold in our within-country and difference-in-difference models, as well as in non-parametric analyses. We also find supporting evidence for the notion that excessive risk-taking of banks impairs earnings quality. As a result, banking reform improves earnings quality partially through its ability to curb risk-taking behavior. Publication

Suggested Citation

  • Fang, Yiwei & Hasan, Iftekhar & Li, Lingxiang, 2014. "Banking reform, risk-taking, and earnings quality – Evidence from transition countries," BOFIT Discussion Papers 19/2014, Bank of Finland Institute for Emerging Economies (BOFIT).
    • Handle: RePEc:zbw:bofitp:bdp2014_019
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    More about this item

    Keywords

    earnings management; earnings quality; institutional development; bank risk-taking;
    All these keywords.

    JEL classification:

    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • M48 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Government Policy and Regulation
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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