The IAS 39 October 2008 Amendment as Another Opportunity of Earnings Management: An Analysis of the European Banking Industry

Abstract

In this paper, we investigate whether there is a relationship between earnings and capital management and the adoption of the October 2008 IAS 39 amendment using a sample of 71 publicly traded bank holding companies in the main European markets. We demonstrate the new reclassification possibilities and the consequent avoided losses are mainly used by companies with higher profitability and adopting in the past earnings management behavior. No significant relationship is found concerning capital management. This result gives further support to the studies of IFRS earning quality.

Keywords: IFRS, IAS 39, Fair Value, Earnings Management, Banking Industry

JEL Classification: M41