Bank Earnings Management Using Loan Loss Provisions: Comparing the UK, France, South Africa and Egypt

Journal of Economic and Administrative Sciences 2021

17 Pages Posted: 21 Jul 2021

Date Written: June 28, 2021

Abstract

This paper investigates bank earnings management using loan loss provision (LLP). The paper examines income smoothing which is a type of earnings management. It compares the income smoothing behaviour of banks in the UK, France, South Africa and Egypt. The findings show that bank income smoothing is present in the UK and Egypt, and absent in France and South Africa during the period examined. Banks in Egypt used LLPs to smooth income before the global financial crisis. Meanwhile, bank income smoothing is pronounced in France during and after the financial crisis but is absent in the pre-crisis period. Also, bank income smoothing is reduced in countries that (i) have strict banking supervision, (ii) adopt common law such as the United Kingdom, and (iii) adopt civil law such as France and Egypt. Bank earnings management is also greater in countries that adopt a mixed legal system such as South Africa, and in countries that adopt IFRS accounting standards.

Keywords: Banks, Earnings Management, Loan Loss Provisions, Income Smoothing, United Kingdom, France, Egypt, South Africa

JEL Classification: G21, G28, M41

Suggested Citation

Ozili, Peterson K, Bank Earnings Management Using Loan Loss Provisions: Comparing the UK, France, South Africa and Egypt (June 28, 2021). Journal of Economic and Administrative Sciences 2021, Available at SSRN: https://ssrn.com/abstract=3875404 or http://dx.doi.org/10.2139/ssrn.3875404

Peterson K Ozili (Contact Author)

Independent ( email )

Nigeria
Nigeria
Abuja
Nigeria

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