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Bank Income Smoothing, Institutions and Corruption

Ozili, Peterson K (2019): Bank Income Smoothing, Institutions and Corruption. Forthcoming in: Research in International Business and Finance

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This study investigates bank income smoothing, focusing on the effect of corruption on the extent of income smoothing by African banks. I find that banks use loan loss provisions to smooth positive (non-negative) earnings particularly in the post-2008 crisis period and this behaviour is reduced by strong investor protection. Also, I find that banks in highly corrupt environments smooth their positive (non-negative) earnings as opposed to smoothing the entire profit distribution. Finally, cross-country variation in bank income smoothing is observed. The findings have implications.

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