Earnings Management Practices in Banks: An Analysis of Participation and Investment Banks in Turkey

Year 2022, Volume: 30 Issue: 53, 465 - 485, 29.07.2022

Hüseyin Çetin Ali Güçlü

https://doi.org/10.17233/sosyoekonomi.1052700

Abstract

This study identified earnings management behaviours of investment and participation banks in Turkey. Banks typically conduct earnings management activities through accrued variables found in financial statements. The study was done by analysing the data of these banks from 2005-2019. Panel data analysis is used as an analysis method. According to analysis findings, it was determined that banks were involved in earnings management activities using the loan loss allowances variable in their financial statements. However, a meaningful statistical relationship between the loan loss allowances dependent variable and macroeconomic variables such as inflation, interest and growth rate were not detected.

Keywords

Earnings Management, Loan Loss Allowances, Investment Banks, Participation Banks

Bankalarda Kâr Yönetimi Uygulamaları: Türkiye’de Katılım ve Yatırım Bankaları Üzerine Bir Analiz

Abstract

Bu çalışmada Türkiye’de faaliyette bulunan katılım ve yatırım bankalarının kâr yönetimi davranışları tespit edilmeye çalışılmıştır. Bankalar kâr yönetim faaliyetlerini genelde mali tablolarında bulunan ve tahakkuk esaslı değişkenler vasıtasıyla gerçekleştirmektedir. Çalışma bu bankaların 2005-2019 yılları arasındaki verileri analiz edilerek yapılmıştır. Analiz yöntemi olarak panel veri analizi kullanılmıştır. Analiz bulgularına göre bankaların mali tablolarında yer alan özel karşılıklar değişkenini kullanarak kâr yönetimi faaliyetinde bulundukları tespit edilmiştir. Ancak özel karşılıklar bağımlı değişkeni ile enflasyon, faiz ve büyüme gibi makroekonomik değişkenler arasında anlamlı istatistiki bir ilişki tespit edilememiştir.

Keywords

Kâr Yönetimi, Özel Karşılıklar, Yatırım Bankaları, Katılım Bankaları

References

• Abdelsalam, O. et al. (2016), “Earnings Management Behaviors under Different Monitoring Mechanism: The Case of Islamic and Conventional Banks”, Journal of Economic Behavior & Organization, 132, 155-173.
• Acar, M. & M.O. Ipci (2015), “Loan Loss Provisions and Income Smoothing Hypothesis: Experience from Turkish Banking Sector”, Journal of Accounting, Finance and Economics, 5, 118-135.
• Affes, H. & T. Smii (2016), “The Impact of the Audit Quality on that of the Earnings Management: Case Study in Tunisia”, Journal of Accounting and Marketing, 5, 1-8.
• Ahmed, A.S. et al. (1999), “Bank Loan Loss Provisions: A Reexamination of Capital Management, Earnings Management and Signalling Effects”, Journal of Accounting and Economics, 28(1), 1-25.
• Anık, M. (2019), “Kalkınma ve Yatırım Bankalarının Sosyoekonomik Kalkınmadaki Rolü ve Bir Örnek Olay İncelemesi”, Yüksek Lisans Tezi, İstanbul: Marmara Üniversitesi Bankacılık ve Sigortacılık Enstitüsü.
• Barth, M.E. et al. (1996), “Value-Relevance of Banks’Fair Value Disclosures under SFAS No. 107”, The Accounting Review, 71, 513-537.
• Barth, M.E. et al. (2008), “International Accounting Standards and Accounting Quality”, Journal of Accounting Research, 46, 467-498.
• Begley, J. (1990), “Debt Covenants and Accounting Choice”, Journal of Accounting and Economics, 12, 125-139.
• Bergstresser, D. & T. Philippon (2006), “CEO Incentives and Earnings Management”, Journal of Financial Economics, 80, 511-529.
• Beyer, A. (2009), “Capital Market Prices, Management Forecasts, and Earnings Management”, The Accounting Review, 84, 1713-1747.
• Bhat, V.N. (1996), “Baks and Income Smoothing: An Empirical Analysis”, Applied Financial Economics, 6, 505-510.
• Blasco, N. & B. Pelegrin (2006), “A New Methodological Approach for Detecting Income Smoothing in Small Samples: An Application to the Case of Spanish Savings Banks”, Journal of Accounting, Auditing and Finance, 21, 347-372.
• Cahan, S.F. (1992), “The Effect of Antitrust Investigations on Discretionary Accruals: A Refined Test of the Political Cost Hypothesis”, The Accounting Review, 67, 77-95.
• Cavallo, M. & G. Majnoni (2001), “Do Banks Provision for Bad Loans in Good Times”, Policy Research Working Paper 2619: Empirical Evidence and Policy Implications, The World Bank Financial Sector Strategy and Policy Department.
• Collins, J.H. et al. (1995), “Bank Differences in the Coordination of Regulatory Capital, Earnings, and Taxes”, Journal of Accounting Research, 33, 263-291.
• Crisci, A. et al. (2014), “A Panel Data Approach to Evaluate Passenger Satisfaction of a Public Transport Service”, Procedia Economics and Finance, 17, 231-237.
• Das, P. (2019), Econometrics in Theory and Practice, Kolkata, India: Springer Nature India.
• Dempsey, S.J. et al. (1993), “Earnings Management and Corporate Ownership Structure: An Examination of Extraordinary Item Reporting”, Journal of Business Finance and Accounting, 20, 479-500.
• Fonseca, A.R. & F. Gonzalez, (2008), “Cross Country Determinants of Bank Income Smoothing by Managing Loan Loss Provisions”, Journal of Banking and Finance, 32, 217-228.
• Giroux, G. (2006), Earnings Magic and Unbalanced Sheet: The Search for Financial Reality, New Jersey: Jon Wiley & Sons Inc.
• Goel, S. (2016), “The Earnings Management Motivation: Accrual Accounting vs Cash Accounting”, Australasian Accounting, Business, and Finance Journal, 10, 48-66.
• Gray, R.P. (2004), The Allowance for Loan Losses and Earnings Management, <https://ssrn.com/abstract=598482>, 28.07.2021.
• Greenavalt, M.B. & J.F. Sinkey, (1998), “Bank Loan Loss Provisions and the Income Smoothing Hypothesis: An empirical Analysis, 1976-1984”, Journal of Financial Services Research, 1, 301-318.
• Greene, W.H. (2008), Econometric Analysis, New Jersey: Pearson Prentice Hall.
• Gujarati, D.N. (2004), Basic Econometrics, California: The McGraw Hill Companies.
• Hamdi, F.M. & M.A. Zarai (2013), “Perspectives of Earnings Management in Islamic Banking Institutions”, International Journal of Business and Management Invention, 2, 26-38.
• Hasan, I. & L.D. Wall (2004), “Determinants of Loan Loss Allowance: Some Cross-Country Comparisons”, The Financial Review, 39, 129-152.
• Healy, P.M. & J.M. Wahlen (1999), “A Review of the Earnings Management Literature and its Implications for Standard Setting”, Accounting Horizons, 13, 365-383.
• Jin, J. et al. (2016), “Discretion in Bank Loan Loss Allowance, Risk Taking and Earnings Management”, Accounting and Finance, 58, 171-193.
• Kanagaretnam, K. et al. (2003), “Managerial Incentives for Income Smoothing through Banks Loan Loss Provisions”, Review of Quantitive Finance and Accounting, 20, 63-80.
• Karluk, R. (2014), Türkiye Ekonomisi: Cumhuriyetin İlanından Günümüze Yapısal Dönüşüm, İstanbul: Beta Basım Yayım.
• Kolsi, M.C. & R. Grassa (2017), “Did Corporate Governance Mechanism Affect Earnings Management? Further Evidence from GCC Islamic Banks”, International Journal of Islamic and Middle Eastern Finance and Management, 10(1), 2-23.
• Leuz, C. et al. (2003), “Earnings Management and Investor Protection: An International Comparison”, Journal of Financial Economics”, 69, 505-527.
• Li, S. & N. Richie (2015), “Income Smoothing and the Cost of Debt”, China Journal of Accounting Research, 9, 175-190.
• Lobo, G.L. & D.H. Yang (2001), “Bank Managers’ Heterogeneous Decision on Discretionary Loan Loss Provisions”, Review of Quantitive Finance and Accounting, 16, 223-250.
• Lossoued, N. et al. (2018), “Earnings Management in Islamic and Conventional Banks: Does Ownership Structure Matter? Evidence from the MENA Region”, Journal of International Accounting, Auditing and Taxation, 30, 85-105.
• Ma, C.K. (1988), “Loan Loss Reserves and Income Smoothing: The Experience in the U.S. Banking Industry”, Journal of Business Finance and Accounting, 15, 487-497.
• Mersni, H. & H.B. Othman (2016), “The Impact of Corporate Governance Mechanism on Earnings Management in Islamic Banks in the Middle East Region”, Journal of Islamic Accounting and Business Research”, 7(4), 318-348.
• Moyer, S.E. (1990), “Capital Adequacy Ratio Regulations and Accounting Choices in Commercial Banks”, Journal of Accounting and Economics, 13, 123-154.
• Needles, B.E. et al. (2018), “Earnings Management: A Review of Selected Cases”, Muhasebe Enstitüsü Dergisi, 16(59), 23-36.
• Olson, D. & T.A. Zoubi (2014), “The Determinants of Loan Loss and Allowances for MENA Banks: Simultaneous Equation and Three-Stage Approaches”, Journal of Islamic Accounting and Business Research, 5, 98-120.
• Özsoy, İ. vd. (2013), “Türkiye’de Katılım Bankalarının Tercih Edilme Sebepleri: Ampirik Bir Tetkik”, Yönetim ve Ekonomi, 20(1), 187-206.
• Quttaniah, M.A. et al. (2013), “Do Islamic Banks Employ Less Earnings Management?”, Journal of International Financial Management & Accounting, 34(3), 203-233.
• Ronen, J. & V. Yaari (2008), Earnings Management: Emerging Insights in Theory, Practice and, Research, New York: Springer Science+Business Media LLC.
• Schipper, K. (1989), “Commentary on Earnings Management”, Accounting Horizons, 3, 91-102.
• Scott, W.R. (2015), Financial Accounting Theory, Toronto: Pearson Canada Inc.
• Shirieves, R.E. & D. Dahl (2003), “Discretionary Accounting and the Behavior of Japanese Banks under Financial Duress”, Journal of Banking and Finance, 27, 1219-1243.
• Sundvik, D. (2017), “A Review of Earnings Management in Private Firms in Response to Tax Rate Changes”, Nordic Tax Journal, 1, 151-161.
• Tuğcu, C.T. (2018), “Panel Data Analysis in the Energy-Growth Nexus (EGN)”, in: A.N. Menegaki (ed.), The Economics and Econometrics of the Energy-Growth Nexus, Greece: Academic Press.
• Vania, A.S. et al. (2018), “Does Earning Management Happen in Islamic Bank? (Indonesia and Malaysia Comparison)”, International Journal of Commerce and Finance, 4, 47-59.
• Verbruggen, S. et al. (2008), “Earnings Management: A Literature Review”, HUB Search Paper 2008/14, Belgium: Hogeschool-Universiteit Brussel.
• Watts, R.L. & J.L. Zimmerman (1978), “Towards a Positive Theory of the Determination of Accounting Standards”, The Accounting Review, 53, 112-134.
• Yetiz, F. (2016), “Bankacılığın Doğuşu ve Türk Bankacılık Sistemi”, Niğde Üniversitesi İktisadi ve İdari Bilimler Fakültesi Dergisi, 9, 107-117.
• Zaunildin, M.H. & T.K. Lui (2020), “Earnings Management in Financial Institutions: A Comparative Study of Islamic Banks and Conventional Banks in Emerging Markets”, Pacific-Basin Financial Journal, 62, 1-17.