Манипулирование прибылью в банковском секторе ЕС: влияние изменения учетных трактовок на оценку ожидаемых потерь по ссудам
Это исследование направлено на количественную оценку возможного воздействия изменений в требуемом порядке учета резервов на возможные потери по ссудам в январе 2018 года (от модели понесенных убытков к модели ожидаемых кредитных убытков) на уровень манипулирования прибылью капиталом в банковском секторе ЕС. Для этих целей было собрано и проанализировано 1133 наблюдения за период с 2015 по 2020 годы. Результаты показали усиление манипулирования прибылью и капиталом после применения новой модели за счет дополнительной свободы действий по созданию резервов на покрытие убытков по ссудам в рамках новой модели.
Introduction……………………………………………………………………………………………………………………. 7 Chapter 1: Theoretical Background and Literature Review ………………………………………………….. 9
1.1.Earnings and capital management literature ………………………………………………………………. 9 1.1.1.Earnings management definition and importance in financial studies …………………….. 9
1.1.2. Modelling and measuring the earnings management………………………………………….. 10
1.1.3. Earnings smoothing through provisions and allowances…………………………………….. 12
1.1.4. Capital management and its disincentives to income smoothing …………………………. 13
1.2. Earnings management in the banking industry ………………………………………………………… 14
1.2.1. income smoothing in the banking industry using loan loss provisions …………………. 14
1.2.2. Earnings and capital management within the EU banking industry ……………………… 16
1.3. IFRS and Basel requirements and their impact on earnings and capital management …… 16
1.3.1. European Union involvement in IFRS adoption and Basel requirements ……………… 16
1.3.2 IFRS 9: Financial instruments – Classification of financial assets………………………… 19
1.3.3. Differences between IFRS 9 and IAS 38 in loan loss provision models ……………….. 21
1.4. Research goals ……………………………………………………………………………………………………. 24 1.4.1. Post-IFRS 9 level of earnings management in the banking sector ……………………….. 24
1.4.2. Post-IFRS 9 Loan Loss Provisioning and capital management……………………………. 26 1.5. Hypothesis Development ……………………………………………………………………………………… 26 1.5.1. ECLM overall impact on the extent of earnings management …………………………….. 27 1.5.2. Regulatory capital disincentive within the EU banks after ECLM application………. 28 1.6. Managerial Implications of the research…………………………………………………………………. 29 1.7. Expected Challenges and Limitations…………………………………………………………………….. 30
Chapter 2: Research Design and Methodology …………………………………………………………………. 31 2.1. Methods to detect earnings management through LLP in the banking sector ………………. 31
2.2. Measuring the impact of the ECLM model on banks’ earnings………………………………….. 33 2.3. Cross-country factors affecting earnings management through LLP in banks……………… 33 2.4. Research Methodology ………………………………………………………………………………………… 34 2.5. Data Collection …………………………………………………………………………………………………… 39 2.6. Descriptive statistics and correlations…………………………………………………………………….. 41 2.7. Preliminary results of the empirical model ……………………………………………………………… 48 2.8. Regional comparison and cross-validation of the results ………………………………………….. 52
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2.9. Interpretation of the findings ………………………………………………………………………………… 55 Conclusion …………………………………………………………………………………………………………………… 57 References……………………………………………………………………………………………………………………. 59
The International Financial Reporting Standards foundation aims to improve financial reporting quality by setting and improving its accounting and reporting standards. This not-for-profit organization’s strategy is to make global financial markets transparent and efficient. European Union Commission has the exact expectations as requiring public companies to apply IFRS standards for consolidated figures from 2005 onwards1 to enhance the comparability and maintain public trust and confidence in market functionality. IASB, since 2008, had the research project to decrease the complexity of financial instrument recognition and measurement. The Incurred Loss model was evaluated as a weak recognition model during the financial crisis due to delayed recognition, causing increased income smoothing among the banks (Lee J. Cohen, 2014) and other firms (Vedran Capkun, 2016). Following the Financial Crisis Advisory Group’s recommendation on having a more forward-looking alternative model to incurred loss treatment2, the Board issued an Exposure Draft3 for Expected Credit Losses of Financial Instruments in March 2013. Finally, in July 2014, the Board published IFRS 9 Financial Instruments, including the replacing impairment requirements for an entity’s expected credit losses accounting on its financial assets and commitments to extend credit. The mandatory application of such treatment took place on 1 January 2018. At the IFRS mandatory adoption in 2005, most European countries had to change the accounting treatment from expected loss models to the IAS 39 incurred loss model. Hopefully, though several findings agree that the IAS39 application as part of IFRS adoption in the European Union has reduced the banks’ income smoothing (Gebhardt, 2011; Anandarajan, 2011) and other non-financial firms earnings quality (Mary E. Barth, 2008), some criticize the incurred loss model’s tardiness, especially during financial crises (Gebhardt, 2011). The importance of this research is to attempt to figure out the possible impact of the turn in the standards, whether if it has resulted in enhanced earnings quality or not. Under the impairment requirements in IAS 39, the recognition of such loss was subject to objective evidence considering only past conditions and current events for the determination of the amount and, in contrast, IFRS 9 explains that changes in credit risk are assessed based on changes in the risk of a default occurring over the expected life of the
1 Regulation (EC) no 1606/2002 of the European Parliament and of the Council of 19 July 2002 on the Application of International Accounting Standards
2 Report of the Financial Advisory Group, July 2009, pg. 6
3 IFRS Exposure Draft ED/2013/3 Financial Instruments: Expected Credit Losses
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financial instrument (Arta Limani, 2017). The transition to the ECLM has an impact on some key financial performance indicators within the banks. It gives more room for judgment and significant estimations. Some banks may experience a decrease in allowance due to reclassification to Fair Value Through Other Comprehensive Income but mostly have already experienced an increase in allowance (Laure Guegan, 2018). Some findings suggest that the incurred loss model boosts the loan market procyclicality while the ECLM solves the issue (Vincent Bouvatiera, 2012).
Nonetheless, there has not been well-justified research applying the methodology to similar and outstanding earnings management studies to approve. The research goal in this study is to figure out the possible impact of the new provisioning model on the extent of earnings and capital management by applying a proper methodology and modeling. The results would be pretty essential to examine the changes in the earnings quality and evaluate the implementation and application of the new standard.
The first chapter will discuss the main definitions and background of research in earnings and capital management and related past workings in the banking industry. In the second chapter, we summarize the methodological approach in similar studies, justify and apply the methodology to the collected data. Following the preliminary results of the analysis and the interpretations, we conclude the study results.
Ana Rosa Fonseca, F. G. (2008). Cross-country determinants of bank income smoothing by managing loan-loss provisions. Journal of Banking & Finance 32, 217–228.
Anandarajan, S. L. (2011). Loan Loss Provisions, Earnings Management and Capital Management under IFRS: The Case of EU Commercial Banks. Journal of Financial Services Research, 103-122.
Anandrajan, A. I.-V. (2003). The Role of Loan Loss Provisions in Earnings Management, Capital Management, and Signalling: The Spanish Experience. Advances in International Accounting, 45-65.
Anne Beatty, S. L. (1995). Managing Financial Reports of Commercial Banks: The Influence of Taxes, Regulatory Capital, and Earnings. Journal of Accounting Research, 231-261.
Anne L. Beatty, B. K. (2002). Earnings Management to Avoid Earnings Declines across Publicly and Privately Held Banks . Source: The Accounting Review, Vol. 77, No. 3 , 547-570.
Anwer S. Ahmed, C. T. (1999). Bank loan loss provisions: a reexamination of capital management, earnings management and signaling effects . Journal of Accounting and Economics 28, 1- 25.
Anwer S. Ahmed, M. N. (2013). Does Mandatory Adoption of IFRS Improve AccountingQuality? Preliminary Evidence. Contemporary Accounting Research, 1344-1372.
Arta Limani, A. M. (2017, July). IFRS 9 and key changes with IAS 39. The Kosovo Banker Deloitte – Experts Corner, pp. 12-16.
Baber, W. R.-H. (2011). Modeling discretionary accrual reversal and the balance sheet as an earnings management constraint. The Accounting Review, 86,, 1189–1212.
Beaver, W. E. (1989). Financial reporting, supplemental disclosures and bank share prices. Journal of Accounting Research, 157-178.
Boyd, J. H. (1993). Bank holding company mergers with nonbank financial firms: Effects on the risk of failure*. Journal of Banking and Finance, 43-63.
Capkun, V. D. (2016). The effect of IAS/IFRS adoption on earnings management (smoothing): A closer look. Journal of Accounting and Public Policy, 352-394.
Christian Leuza, D. N. (2003). Earnings management and investor protection: an international comparison. Journal of Financial Economics 69, 505–527.
Collins, J. S. (1995). Bank differences in the coordination of regulatory capital,earnings and taxes. Journal of Accounting Research, 263–292.
Daniel Zéghal, S. C. (2011). An analysis of the effect of mandatory adoption of IAS/IFRS on earnings. Journal of International Accounting, Auditing and Taxation.
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