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Profit status of microfinance institutions and incentives for earnings management

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  • de Oliveira Leite, Rodrigo
  • dos Santos Mendes, Layla
  • de Lacerda Moreira, Rafael

Abstract

We theorize that for-profit microfinance institutions (MFIs) have higher incentives to use earnings management techniques when compared to their not-for-profit counterparts. Indeed, we show empirically that, when facing a distress period, for-profit MFIs are more likely to recognize impairment loan loss provisions than not-for-profit ones in about 0.8% of assets. This is consistent with the notion that those institutions are employing “big bath” accounting practices. Finally, using the 2008 crisis as an exogenous shock and country-level recessions as an exogenous measure of distress, we replicate our results.

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  • de Oliveira Leite, Rodrigo & dos Santos Mendes, Layla & de Lacerda Moreira, Rafael, 2020. "Profit status of microfinance institutions and incentives for earnings management," Research in International Business and Finance, Elsevier, vol. 54(C).
    • Handle: RePEc:eee:riibaf:v:54:y:2020:i:c:s0275531919311201
    DOI: 10.1016/j.ribaf.2020.101255
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    Cited by:

    1. Pignatel, Isabelle & Tchakoute Tchuigoua, Hubert, 2020. "Microfinance institutions and International Financial Reporting Standards: An exploratory analysis," Research in International Business and Finance, Elsevier, vol. 54(C).
    2. Mohamed, Toka S. & Elgammal, Mohammed M., 2023. "Credit risk in Islamic microfinance institutions: The role of women, groups, and rural borrowers," Emerging Markets Review, Elsevier, vol. 54(C).

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    More about this item

    Keywords

    Microfinance; Earnings management; Impairment provisions;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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