Loan Loss Provisions and Earnings Management under IFRS 9: An International Evidence
Résumé
This paper compares the post-adoption effects of IFRS 9 adoption on earnings management in particular on the income smoothing behavior of banks in Europe and Sub-Saharan Africa. We extend our analysis to examine the effect of country-level governance on income smoothing. Using a sample of listed commercial banks in Europe and Sub-Saharan Africa, the authors employ varying econometric tests and panel regressions to investigate the hypotheses. The findings show a decrease in income smoothing across the full sample post-IFRS 9. Partitioned into sub-samples to explore potential economic heterogeneity and differing institutional context between the European and Sub-Saharan African settings, we report mixed evidence of higher and decreased income smoothing in Europe and Sub-Saharan Africa respectively. This is consistent with the theoretical arguments that the implementation effects of IFRS 9 are expected to vary across jurisdictions (Deloitte, 2016b). Also, governance quality mitigates the incidence of income smoothing. This paper is one of the first to empirically compare the income smoothing behavior of commercial banks in Europe and Sub-Saharan Africa following the adoption of IFRS 9. It, therefore, provides original insight into the theoretical argument that the adoption effects of IFRS 9 are expected to vary across jurisdictions depending on several factors like country, firm size, and institutional factors among others (Deloitte, 2016b). The findings highlight how bank managers in different jurisdictions exercise the inherent discretion under IFRS 9 over their financial reporting choices.