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Article Dans Une Revue Journal of Accounting and Public Policy Année : 2022

Covid-19 pandemic, a catalyst for aggressive earnings management by banks?

Daniel Taylor
Isaac Selasi Awuye
  • Fonction : Auteur
Eunice Yaa Cudjoe
  • Fonction : Auteur
  • PersonId : 1199849

Résumé

This paper investigates the effects of the Covid-19 pandemic on the financial reporting quality of European banks by examining the occurrence of earnings management specifically income smoothing. Using a sample of listed European banks, we employ panel estimation to compare income smoothing in the pre-pandemic period (2019Q1-2019Q4) and the pandemic period (2020Q1-2021Q4). We find that earnings management has significantly increased during the pandemic years, evidencing how the quality of financial reporting is affected during the crisis period. Our findings further suggest that amid the crisis, governance quality limits the incidence of earnings management and emphasizes how the strength of country-level governance and institutional framework affects the quality of financial reporting. Further analysis shows that though banks are inclined to manage earnings during a crisis, nevertheless, the presence of high-quality audit is a limiting factor on the incidence of earnings management in the face of crisis. Our findings which are relevant to investors, market participants, and regulators among others make a significant contribution to the accounting literature and specifically complement the strand of literature on the discretionary use of loan loss provision for earnings management during crisis.

Dates et versions

hal-03823475 , version 1 (20-10-2022)

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Citer

Daniel Taylor, Isaac Selasi Awuye, Eunice Yaa Cudjoe. Covid-19 pandemic, a catalyst for aggressive earnings management by banks?. Journal of Accounting and Public Policy, 2022, 42 (1), pp.107032. ⟨10.1016/j.jaccpubpol.2022.107032⟩. ⟨hal-03823475⟩
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