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Bank earnings smoothing during mandatory IFRS adoption in Nigeria

Author

Listed:
  • Peterson K. Ozili
  • Erick R. Outa

Abstract

Purpose - The purpose of this paper is to examine the extent of bank earnings smoothing during mandatory International Financial Reporting Standards (IFRS) adoption in Nigeria, to determine whether mandatory IFRS adoption increased or decreased income smoothing among Nigerian banks. Design/methodology/approach - The authors employ panel regression methodology to estimate the association between loan loss provisions (LLPs) and bank earnings. Findings - The authorse find that the mandatory adoption of IFRS is associated with lower earnings smoothing among Nigerian banks, which implies that Nigerian banks do not use LLPs to smooth reported earnings during the mandatory IFRS adoption period. The authors find evidence for earnings smoothing via LLP during voluntary IFRS adoption. Earnings smoothing is not significantly associated with listed and non-listed Nigerian banks during voluntary and mandatory IFRS adoption. Overall, the findings indicate that mandatory IFRS adoption improves the informativeness and reliability of LLPs estimate by discouraging Nigerian banks from influencing LLPs for earnings smoothing purposes during the mandatory IFRS adoption. The findings of this paper are relevant to the debate on whether IFRS reporting improves the quality of financial reporting among firms in Nigeria. Practical implications - Overall, the findings indicate that mandatory IFRS adoption improves the informativeness and reliability of LLPs estimate by discouraging Nigerian banks from influencing LLPs estimates to smooth earnings during the period of mandatory IFRS adoption. Social implications - The implication of the study is that IFRS has higher accounting quality than local GAAP in Nigeria as it improves the quality and informativeness of accounting numbers (LLPs and earnings) reported by Nigerian banks during the period examined. Originality/value - This study is the first attempt to focus on income smoothing during mandatory IFRS adoption in Nigeria.

Suggested Citation

  • Peterson K. Ozili & Erick R. Outa, 2018. "Bank earnings smoothing during mandatory IFRS adoption in Nigeria," African Journal of Economic and Management Studies, Emerald Group Publishing Limited, vol. 10(1), pages 32-47, October.
    • Handle: RePEc:eme:ajemsp:ajems-10-2017-0266
    DOI: 10.1108/AJEMS-10-2017-0266
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    Cited by:

    1. Ozili, Peterson K., 2019. "Bank income smoothing, institutions and corruption," Research in International Business and Finance, Elsevier, vol. 49(C), pages 82-99.
    2. Peterson K. Ozili, 2019. "Impact of IAS 39 reclassification on income smoothing by European banks," Journal of Financial Reporting and Accounting, Emerald Group Publishing Limited, vol. 17(3), pages 537-553, September.
    3. Małgorzata Olszak & Sylwia Roszkowska & Iwona Kowalska, 2018. "The Joint Effect Of Borrower Targeted Macroprudential Instruments And Capital Regulations On Procyclicality Of Loan-Loss Provisions," Copernican Journal of Finance & Accounting, Uniwersytet Mikolaja Kopernika, vol. 7(3), pages 29-53.
    4. Ozili, Peterson K, 2019. "Bank Earnings Management using Commission and Fee Income: the Role of Investor Protection and Economic Fluctuation," MPRA Paper 101824, University Library of Munich, Germany.

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    More about this item

    Keywords

    Earnings management; Discretionary accruals; Nigeria; Income smoothing; Loan loss provisions; IFRS; G21; G28;
    All these keywords.

    JEL classification:

    • G2 - Financial Economics - - Financial Institutions and Services
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • M42 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Auditing
    • M48 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Government Policy and Regulation

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