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IFRS 9 and earnings management: the case of European commercial banks

Author

Listed:
  • Matthias Nnadi
  • Atis Keskudee
  • Wey Amaewhule

Abstract

Purpose - This paper examines the impact of International Financial Reporting Standards (IFRS) 9 on earnings management (EM) using data from 2011 to 2019 of 100 commercial banks in Europe. Design/methodology/approach - Using data from 2011 to 2019 of 100 commercial banks in Europe, the authors conducted several empirical investigations to test the mediating role of IFRS 9 on earnings manipulation through loan loss provision (LLP) by banks. Findings - The result shows that the new accounting standards (IFRS 9) significantly affect the way banks report LLP. This paper provides evidence that non-listed banks in the EU engage in EM through LLP following IFRS 9 but experience less volatility of net income following the adoption. The findings indicate that such behaviour by banks cannot be suppressed by level of audit quality; suggesting that an improvement in accounting standards might not always guarantee accounting quality. Originality/value - This finding has some policy implications; and regulators will need to identify additional tools to regulate or supervise EM behaviour.

Suggested Citation

  • Matthias Nnadi & Atis Keskudee & Wey Amaewhule, 2023. "IFRS 9 and earnings management: the case of European commercial banks," International Journal of Accounting & Information Management, Emerald Group Publishing Limited, vol. 31(3), pages 504-527, April.
    • Handle: RePEc:eme:ijaimp:ijaim-09-2022-0203
    DOI: 10.1108/IJAIM-09-2022-0203
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