TY - JOUR

T1 - IFRS 9, earnings management, and capital management by European banks

AU - Никулин, Егор Дмитриевич

AU - Даунинг, Джеффри Дейл

AU - Норузпур, Мохаммадмахди

PY - 2023/6/5

Y1 - 2023/6/5

N2 - Purpose: The purpose of this paper is to compare earnings management (EM) and capital management (CM) by European banks before and after the adoption of IFRS 9. After IFRS 9, banks have more discretion in recognizing loan-loss provisions than before IFRS 9. Hence, after IFRS 9, banks could use EM and CM to a greater extent. Design/methodology/approach: This paper analyzes a sample of European banks and uses regression analysis. First, this paper examines whether EM and CM changed after IFRS 9 was adopted. Next, this study examines whether any changes in EM and CM under IFRS 9 depend on regulatory quality (RQ) in the country where banks are located. Findings: This paper has three results. First, after IFRS 9, EM increased relative to before IFRS 9. Second, after IFRS 9, CM increased relative to before IFRS 9. Third, this increase in EM was only for banks in countries with low RQ – in countries with high RQ, this study finds no change in EM after IFRS 9. Altogether, these results suggest that, first, EM and CM increased after IFRS 9 and, second, this increase in EM depended on the RQ of a bank’s country. Originality/value: This paper identifies how the adoption of IFRS 9 affected EM and CM by European banks. The main contribution of this paper is that it examines the impact of the adoption of IFRS 9 on EM and CM by European banks using data from banks’ actual financial statements.

AB - Purpose: The purpose of this paper is to compare earnings management (EM) and capital management (CM) by European banks before and after the adoption of IFRS 9. After IFRS 9, banks have more discretion in recognizing loan-loss provisions than before IFRS 9. Hence, after IFRS 9, banks could use EM and CM to a greater extent. Design/methodology/approach: This paper analyzes a sample of European banks and uses regression analysis. First, this paper examines whether EM and CM changed after IFRS 9 was adopted. Next, this study examines whether any changes in EM and CM under IFRS 9 depend on regulatory quality (RQ) in the country where banks are located. Findings: This paper has three results. First, after IFRS 9, EM increased relative to before IFRS 9. Second, after IFRS 9, CM increased relative to before IFRS 9. Third, this increase in EM was only for banks in countries with low RQ – in countries with high RQ, this study finds no change in EM after IFRS 9. Altogether, these results suggest that, first, EM and CM increased after IFRS 9 and, second, this increase in EM depended on the RQ of a bank’s country. Originality/value: This paper identifies how the adoption of IFRS 9 affected EM and CM by European banks. The main contribution of this paper is that it examines the impact of the adoption of IFRS 9 on EM and CM by European banks using data from banks’ actual financial statements.

KW - Loan-loss provisions, Earnings management, Capital management, IFRS 9, Banking regulation

KW - Banking regulation

KW - Capital management

KW - Earnings management

KW - IFRS 9

KW - Loan-loss provisions

UR - https://www.mendeley.com/catalogue/5024d863-9c6d-3325-ab7f-3ff727a92222/

U2 - 10.1108/jfra-06-2022-0237

DO - 10.1108/jfra-06-2022-0237

M3 - Article

JO - Journal of Financial Reporting and Accounting

JF - Journal of Financial Reporting and Accounting

SN - 1985-2517

ER -