The Effect of Earnings Management and Signaling on Loss Loan Provision: The Role of Bank Capitalization

Reference to this paper should be made as follows: Jasman; Murwaningsari, E; Mayangsari, S; Mulyani, S.D. (2021). The Effect of Earnings Management and Signaling on Loss Loan Provision: The Role of Bank Capitalization, Journal of Finance and Banking Review, 6(1), 43 – 50. https://doi.org/10.35609/jf

8 Pages Posted: 12 Jul 2021

See all articles by GATR Journals Submitter

GATR Journals Submitter

Global Academy of Training and Research (GATR)

Jasman Jasman

Faculty of Economics and Business, Universitas Trisakti, Indonesia

Etty Murwaningsari

Faculty of Economics and Business, Universitas Trisakti, Indonesia

Sekar Mayangsari

Faculty of Economics and Business, Universitas Trisakti, Indonesia

Susi Dwi Mulyani

Faculty of Economics and Business, Universitas Trisakti, Indonesia

Date Written: June 30, 2021

Abstract


Objective - Loan loss provision is an accrual for the banking industry, and therefore has a significant effect on bank accounting earnings and capital requirements. Previous studies showed inconsistent results for the relationship between earnings management, signaling, and loan loss provision. The difference in the results is thought to be caused by bank capitalization. Therefore, this study aims to investigate the role of bank capitalization on the effect of earnings management and signaling on loan loss provision.

Methodology – The sample consists of 86 conventional banks in Indonesia for the period of 2015-2019. Furthermore, this study used panel data analysis of multiple regression.

Findings – The results showed earnings management has no effect on loan loss provision. In contrast, signaling has a positive and significant effect. Although bank capitalization is not proven to weaken the effect of earnings management on loan loss provision, it strengthens the positive effect of signaling on loan loss provision.

Novelty – This study proves that bank capitalization has an important role in moderating signaling impact on loan loss provision but not for the effect of earnings management. This is due to the potential for earnings management in banks is relatively low because banks are highly regulated entities and with regulated governance mechanisms limit the managers' discretionary accounting decisions.

Type of Paper - Empirical

Keywords: Bank Capitalization, Earnings Management, Signaling

JEL Classification: G23, G32.

Suggested Citation

Submitter, GATR Journals and Jasman, Jasman and Murwaningsari, Etty and Mayangsari, Sekar and Mulyani, Susi Dwi, The Effect of Earnings Management and Signaling on Loss Loan Provision: The Role of Bank Capitalization (June 30, 2021). Reference to this paper should be made as follows: Jasman; Murwaningsari, E; Mayangsari, S; Mulyani, S.D. (2021). The Effect of Earnings Management and Signaling on Loss Loan Provision: The Role of Bank Capitalization, Journal of Finance and Banking Review, 6(1), 43 – 50. https://doi.org/10.35609/jf, Available at SSRN: https://ssrn.com/abstract=3883276

GATR Journals Submitter (Contact Author)

Global Academy of Training and Research (GATR) ( email )

Suite 15
Taman Bukit Angkasa, Kuala Lumpur 59200
Malaysia

Jasman Jasman

Faculty of Economics and Business, Universitas Trisakti, Indonesia ( email )

Jl. Kyai Tapa No.1, Grogol, RT.6/RW.16
Tomang, Grogol petamburan, Kota Jakarta Barat
Jakarta, Daerah Khusus Ibukota
Indonesia

Etty Murwaningsari

Faculty of Economics and Business, Universitas Trisakti, Indonesia ( email )

Jl. Kyai Tapa No.1, Grogol, RT.6/RW.16
Tomang, Grogol petamburan, Kota Jakarta Barat
Jakarta, Daerah Khusus Ibukota
Indonesia

Sekar Mayangsari

Faculty of Economics and Business, Universitas Trisakti, Indonesia ( email )

Jl. Kyai Tapa No.1, Grogol, RT.6/RW.16
Tomang, Grogol petamburan, Kota Jakarta Barat
Jakarta, Daerah Khusus Ibukota
Indonesia

Susi Dwi Mulyani

Faculty of Economics and Business, Universitas Trisakti, Indonesia ( email )

Jl. Kyai Tapa No.1, Grogol, RT.6/RW.16
Tomang, Grogol petamburan, Kota Jakarta Barat
Jakarta, Daerah Khusus Ibukota
Indonesia

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
13
Abstract Views
54
PlumX Metrics