<abstract xmlns="http://www.w3.org/1999/xhtml">

<p>This study explores the association between earning management practices and financial distress in commercial banks. Earning management is measured through discretionary loan loss provisions and non-discretionary loan loss provisions. Modified Altman’s Z-score has been used as a proxy for financial distress. Panel regression with fixed and random effect has been employed for empirical analysis. The study finds a significant positive association between DLLP, NDLLP and financial distress in terms of the Altman Z-score. In the case of NDLLP, liquidity reduces the probability of financial distress. Whereas, a bank’s SIZE, LEVG and AQ enhance the likelihood of financial distress. The robustness tests were applied to find the association between NDLLP and FD using logistic regression to validate baseline estimates results of the random effect model. The findings of this study have implications for the policymakers, regulators and internal stakeholders to devise effective regulatory measures for well-informed investment decisions.</p>
</abstract>

This study explores the association between earning management practices and financial distress in commercial banks. Earning management is measured through discretionary loan loss provisions and non-discretionary loan loss provisions. Modified Altman’s Z-score has been used as a proxy for financial distress. Panel regression with fixed and random effect has been employed for empirical analysis. The study finds a significant positive association between DLLP, NDLLP and financial distress in terms of the Altman Z-score. In the case of NDLLP, liquidity reduces the probability of financial distress. Whereas, a bank’s SIZE, LEVG and AQ enhance the likelihood of financial distress. The robustness tests were applied to find the association between NDLLP and FD using logistic regression to validate baseline estimates results of the random effect model. The findings of this study have implications for the policymakers, regulators and internal stakeholders to devise effective regulatory measures for well-informed investment decisions.

Accounting Discretion, Loan Loss Provision in Financial Distress: Evidence from Commercial Banks

Associate Professor, Management Sciences, Karakoram International University

Post Doctorate Research Fellow, Tohoku University of Community Service & Science

Zagreb International Review of Economics and Business

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.

This study explores the association between earning management practices and financial distress in commercial banks. Earning management is measured through...

Accounting Discretion, Loan Loss Provision in Financial Distress: Evidence from Commercial Banks

Data publikacji: 20 lis 2022

Zakres stron: 1 - 18

DOI: https://doi.org/10.2478/zireb-2022-0012

Słowa kluczowe
Financial distress, Z-Score, Discretionary loan loss provisions and Non-discretionary loan loss provisions

© 2022 Amina Malik et al., published by Sciendo

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.

Accounting Discretion, Loan Loss Provision in Financial Distress: Evidence from Commercial Banks

Data publikacji: 20 lis 2022

Zakres stron: 1 - 18

DOI: https://doi.org/10.2478/zireb-2022-0012

Słowa kluczoweFinancial distress, Z-Score, Discretionary loan loss provisions and Non-discretionary loan loss provisions

© 2022 Amina Malik et al., published by Sciendo

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.

Słowa kluczowe
Financial distress, Z-Score, Discretionary loan loss provisions and Non-discretionary loan loss provisions