BOFIT Discussion Papers, Institute for Economies in Transition, Bank of Finland
No 19/2014:
Banking reform, risk-taking, and earnings quality – Evidence from transition countries
Yiwei Fang ()
, Iftekhar Hasan ()
and Lingxiang Li ()
Abstract: The dynamic banking reforms of Central and Eastern Europe
(CEE) following the collapse of the Soviet Union provide an ideal research
setting for examining the causal effect of institutional development on
financial reporting. Using five earnings quality measures, we consistently
find that banking reform improves accounting quality and reduces earnings
management incentives in the 16 transition countries considered. The
results strongly hold in our within-country and difference-in-difference
models, as well as in non-parametric analyses. We also find supporting
evidence for the notion that excessive risk-taking of banks impairs
earnings quality. As a result, banking reform improves earnings quality
partially through its ability to curb risk-taking behavior.
Keywords: earnings management; earnings quality; institutional development; bank risk-taking; (follow links to similar papers)
JEL-Codes: E50; G15; G18; G38; M41; M48; (follow links to similar papers)
74 pages, December 2, 2014
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