We analyze if a change in accounting standard or a change in prudential regulationimpacts banks’ loan loss provision. We find that, in general, the banks using aprinciples-based accounting standard exhibit a lower level of earnings managementcompared to banks using a rules-based accounting standard. When a country movesfrom pro-cyclical macro-prudential regulations to a dynamic provisioning regime,banks are more likely to set aside a larger amount of loan loss provision for the purposeof income smoothing.
Ashraf, Ali; Hassan, M. Kabir; Putnam, Kyle J.; and Turunen-Red, Arja
"PRUDENTIAL REGULATORY REGIMES, ACCOUNTING STANDARDS, AND EARNINGS MANAGEMENT IN THE BANKING INDUSTRY,"
Bulletin of Monetary Economics and Banking: Vol. 21:
3, Article 3.
Available at: https://bulletin.bmeb-bi.org/bmeb/vol21/iss3/3