Bank earnings management using loan loss provisions: comparing the UK, France, South Africa and Egypt

Ozili, Peterson Kitakogelu (2021): Bank earnings management using loan loss provisions: comparing the UK, France, South Africa and Egypt. Forthcoming in: Journal of Economic and Administrative Science

Abstract

This paper investigates bank earnings management using loan loss provision (LLP). The paper examines income smoothing which is a type of earnings management. It compares the income smoothing behaviour of banks in the UK, France, South Africa and Egypt. The findings show that bank income smoothing is present in the UK and Egypt, and absent in France and South Africa during the period examined. Banks in Egypt used LLPs to smooth income before the global financial crisis. Meanwhile, bank income smoothing is pronounced in France during and after the financial crisis but is absent in the pre-crisis period. Also, bank income smoothing is reduced in countries that (i) have strict banking supervision, (ii) adopt common law such as the United Kingdom, and (iii) adopt civil law such as France and Egypt. Bank earnings management is also greater in countries that adopt a mixed legal system such as South Africa, and in countries that adopt IFRS accounting standards.

• Item Type: MPRA Paper
• Language: English
• Keywords: banks, earnings management, loan loss provisions, income smoothing
• Subjects: G - Financial Economics > G0 - General > G01 - Financial Crises; G - Financial Economics > G2 - Financial Institutions and Services > G20 - General; G - Financial Economics > G2 - Financial Institutions and Services > G21 - Banks ; Depository Institutions ; Micro Finance Institutions ; Mortgages; G - Financial Economics > G2 - Financial Institutions and Services > G28 - Government Policy and Regulation; G - Financial Economics > G2 - Financial Institutions and Services > G29 - Other; M - Business Administration and Business Economics ; Marketing ; Accounting ; Personnel Economics > M0 - General > M00 - General; M - Business Administration and Business Economics ; Marketing ; Accounting ; Personnel Economics > M4 - Accounting and Auditing > M40 - General; M - Business Administration and Business Economics ; Marketing ; Accounting ; Personnel Economics > M4 - Accounting and Auditing > M41 - Accounting; M - Business Administration and Business Economics ; Marketing ; Accounting ; Personnel Economics > M4 - Accounting and Auditing > M42 - Auditing; M - Business Administration and Business Economics ; Marketing ; Accounting ; Personnel Economics > M4 - Accounting and Auditing > M48 - Government Policy and Regulation; M - Business Administration and Business Economics ; Marketing ; Accounting ; Personnel Economics > M4 - Accounting and Auditing > M49 - Other; O - Economic Development, Innovation, Technological Change, and Growth > O5 - Economywide Country Studies > O55 - Africa; O - Economic Development, Innovation, Technological Change, and Growth > O5 - Economywide Country Studies > O57 - Comparative Studies of Countries

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