What drives discretionary loan loss provisions? The role of banks’ business model, listing status and COVID-19 crisis in the European banking sector

By | 2024-02-09T01:44:54+01:00 February 9th, 2024|

Alessandra Allini, Fiorenza Meucci, Flavio Spagnuolo, Annamaria Zampella / Financial Reporting / 2-2023


Purpose: This study examines whether banks’ business models and listing sta-tus drive the discretionary use of loan loss provisions (LLPs) under the Interna-tional Financial Reporting Standard (IFRS) 9 “Financial Instruments”. Design/methodology/approach: Ordinary least squares regression is per-formed on a sample of 5,147 listed and unlisted European banks for the 2018-2021 period. Findings: The main results show that after Expected Credit Loss (ECL) im-plementation, banks are prone to manage their earnings via LLPs. In detail, origi-nate-to-hold and listed banks use LLPs to manage their earnings more strongly than originate-to-distribute and unlisted banks. Further, during the financial crisis due to the COVID-19 pandemic, European banks tended to manage earnings more than during the pre-crisis period. Originality/value: This study contributes to the existing literature by expand-ing research on LLPs and highlighting ex-ante factors that might influence banks’ provisioning behavior, such as their listing status and business model. Practical implications: This study provides useful insights for regulators and accounting setters in making informed decisions regarding provisioning policies, even during periods of turmoil.

 


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Financial reporting and book-tax conformity: A review of the issues

By | 2022-07-29T16:10:00+02:00 June 6th, 2022|

Luca Menicacci  / Financial Reporting / 1-2022


This work reviews accounting research on book-tax conformity (BTC) with specific reference to financial reporting issues. There is an ongoing debate in the accounting literature about the impact of BTC levels (weak/strong) on accounting quality and on tax avoidance. Policymakers have discussed at length the opportunity to reform BTC as well. Proponents of a strong BTC argue that it can deter both financial reporting manipulation and aggressive tax planning by creating contrasting incentives between book earnings maximisation and taxable income minimisation. Further controls on book earnings assured by taxing authorities will reinforce such beneficial effects. Opponents of a strong BTC suggest that financial accounting decisions should not interfere with tax accounting and vice versa, as financial reporting and tax reporting have different purposes. Furthermore, under a strong BTC, managers will tend to smooth earnings to minimise income taxes, thus reducing earnings in-formativeness. Even if a strand of research based on the Tax Reform Act (TRA 86) in the US corroborates the position of opponents, a large body of literature formed in international settings has not yet reached a consensus over the consequences of BTC. This circumstance makes BTC a relevant topic to the current de-bate on financial reporting quality.

 


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L’avviamento nei bilanci aziendali: impairment test e disclosure

By | 2017-12-27T17:43:40+01:00 December 27th, 2017|

D’Alauro Gabriele/ Financial Reporting, Riviste / Fascicolo: 3-2011


L’applicazione all’avviamento dell’impairment test costituisce uno dei temi maggiormente dibattuti in ambito internazionale, in relazione ai molteplici profili di soggettività insiti nei criteri di valutazione previsti dallo IAS 36 e al conseguente rischio che detta procedura possa costituire un potenziale strumento di politiche di bilancio. Attraverso un’indagine comparata dei bilanci di società quotate italiane e inglesi dal 2005 al 2008, si intende verificare il trattamento contabile dell’avviamento, in particolare nel caso di segnali di perdite di valore, nonché la corrispondente disclosure fornita al riguardo. Nella ricerca sono analizzate le relazioni intercorrenti tra entità della svalutazione dell’avviamento, valutazione dell’azienda riflessa dalle corrispondenti quotazioni di borsa, e grado di disclosure sull’avviamento. Presumendo che la qualità della disclosure esprima il livello di attendibilità con cui si sono applicate le disposizioni dello IAS 36, si verifica l’ipotesi che la mancata effettuazione di svalutazioni, pur in presenza di indicatori di perdite di valore dell’avviamento, conduca le aziende a fornire unadisclosure sull’impairment testnon completa né soddisfacente.

The impairment test of goodwill is a hotly debated issue in the international arena owing to the intrinsic degrees of subjectivity present in the evaluation criteria of IAS 36 and the risk that these assumptions could be used opportunistically by managers. The paper examines a sample of Italian and British consolidated financial statements, referring to the years from 2005 to 2008 particularly with indications of likely impairment, in order to check the accounting treatment of goodwill and its related disclosure. The analysis focuses on the relationship between the magnitude of goodwill writeoffs, market capitalization and disclosure quality. It is suggested that corporate disclosure could act as a yardstick against which the reliability of IAS 36 implementation by management can be measured. It follows, therefore, that no write-offs represents an insufficient level of mandatory disclosure about goodwill impairment.

Keywords: goodwill, IAS 36, impairment test, earnings management, write-offs, disclosure


 

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Un nuovo approccio statistico per l’individuazione delle manipolazioni degli utili: evidenze empiriche dal mercato italiano

By | 2017-12-29T17:31:08+01:00 December 27th, 2017|

Di Narzo Antonio Fabio, Freo Marzia, Mattei Marco Maria/ Financial ReportingRiviste / Fascicolo: 1-2012


Mediante uno studio di simulazione, questo articolo si propone di valutare l’efficacia nel mercato italiano dei metodi comunemente utilizzati nella letteratura nord-americana per individuare le manipolazioni di bilancio. Inoltre, viene proposta una nuova metodologia di stima degli accrual model – il modello delle misture – che non si basa su nessuna classificazione industriale e risolve alcuni dei problemi che questi metodi di indagine manifestano nei paesi con mercati finanziari di minori dimensioni. Dalle analisi svolte emerge che le tecniche d’indagine ampiamente utilizzate a livello internazionale sono efficaci anche nel nostro Paese e che il modello delle misture aumenta significativamente la potenza del test più efficace per ricercare la presenza di manipolazioni di bilancio. Complessivamente questi risultati indurrebbero a concludere che gli accrual model potrebbero essere utilizzati maggiormente dai ricercatori interessati ad investigare la presenza di politiche di bilancio in Italia.

Accruals models are usually estimated cross-sectionally by year and by two-digit SIC code. This estimation approach, however, on the one hand is not applicable in small capital market countries, such as Italy, due to the lack of observations, and on the other hand relies on the implicit assumption of homogeneity of the accrual-generating processes within industries, which sometimes does not hold within two-digit SIC codes. We propose a new estimating technique, the mixture approach, which does not rely on industry classifications and allows researchers to estimate abnormal accruals for the vast majority of firms in small capital market countries. Our analyses suggest that accruals model tests are not less effective in Italy than in other countries and that the mixture approach provides the most powerful test for earnings management.

Keywords: earnings management, accruals models, abnormal accruals, mixture model


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Cambiamenti di cash generating unit e valutazione dell’avviamento

By | 2017-12-29T17:35:04+01:00 December 27th, 2017|

D’Alauro Gabriele/ Financial ReportingRiviste / Fascicolo: 2-2012


Il presente contributo esamina gli effetti delle variazioni di cash generating unit (CGU) sull’entità delle svalutazioni dell’avviamento, attraverso un’indagine comparata di bilanci di società quotate italiane e inglesi. Avendo riguardo alla procedura di impairment test prevista dallo IAS 36, si assume che le modifiche di CGU, ove ritenute “non giustificate”, ovvero non riconducibili a business combinations o a motivate riorganizzazioni interne, possano rivelare politiche di earnings management. In detto contesto si verifica l’ipotesi che un incremento o un decremento non giustificato del numero di CGU, cui l’avviamento risulta allocato, sia associato ad una svalutazione dell’avviamento rispettivamente maggiore o minore rispetto a quella del periodo precedente. I risultati della ricerca, in coerenza con gli assunti propri della teoria dell’earnings management, confermano che i profili di soggettività insiti nella procedura di impairment possono essere utilizzati dai managers in modo opportunistico.

This paper examines whether changes in cash generating units (CGUs) affect the magnitude of goodwill write-offs, with reference to the impact of IAS 36 on a sample of Italian and British firms. As regards an accounting regulation that allows significant unverifiable estimates whilst at the same time one that requires a high level of disclosure, the paper proposes that an unjustified change in the specific CGUs to which each goodwill has to be allocated could reveal earnings management. The change is defined “unjustified” if there is not a business combination which has caused the change or if the internal reorganization is not adequately disclosed. In this context, it is assumed that an unjustified increase in the number of CGUs to which goodwill is allocated will cause higher goodwill write-offs than those recorded in the previous period. On the other hand, it is hypothesized that an unjustified decrease in the num- ber of CGUs is associated to non-impairment or to goodwill write-offs lower than in the previous period. The empirical results confirm the two hypotheses, in both the Italian and British samples. These findings are consistent with earnings management theory insights, suggesting that the profiles of subjectivity inherent in impairment test assumptions could be used opportunistically by managers.

Keywords: Cash Generating Units, goodwill, impairment test, earnings management, write-offs, disclosure


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The relation between R&D accounting treatment and the risk of the firm: Evidence from the Italian market

By | 2017-12-27T14:15:59+01:00 December 27th, 2017|

Cimini Riccardo, Gaetano Alessandro, Pagani Alessandra/Financial ReportingRiviste / Fascicolo: 1-2014


In this paper, we investigate the relation between the different accounting treatments of R&D expenditures and the risk of the entity in order to identify under which treatment insiders are more likely to carry out earnings management. By analysing the R&D investment strategies of a sample of 137 listed Italian entities that complied with the requirements of IAS 38 during fiscal year 2009, following Lantz and Sahut (2005), we calculate several indexes that show the preferences of insiders to account R&D expenditures as costs or capital assets, and we study the relation of such preferences with the risk of the entity, which we measure with the unlevered beta. We hypothesize that the entities, which considered the R&D investments as costs, are the riskiest ones due to the higher probability that insiders carried out earnings management. Our results confirm such hypothesis. This paper could have implications for academics and standard setters that could learn that behind accounting discretion, insiders could opportunistically behave against outsiders.

Keywords: IAS 38, R&D accounting treatment, risk, earnings management.


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