The Differential Impact of Size on Earnings Management Practices of Banks: Evidence from the Financial Crisis of 2008

• In Event: Financial Accounting and Reporting 4

Abstract

Building on and extending our prior work, this paper studies the income smoothing practices in the banking industry in the period following the financial crisis, with particular focus on banks of different sizes and of those experiencing declining profitability. We utilize a balanced panel dataset of over 22,000 observations including the entire population of commercial banks and thrifts that had been active over the period from 2006 to 2009. Our empirical evidence lends support to the income smoothing hypothesis, specifically in the case of institutions in a weakened financial position. We also show that the relationship between loan loss provisioning and bank size was moderated by institutions’ financial condition.

Authors

• Burak Dolar, Western Washington University

• Kirsten Drickey, Western Washington University