The Relationship Between Bank Risk and Earnings Management: Evidence from Japan

The Relationship Between Bank Risk and Earnings Management: Evidence from Japan Using stock price data drawn from the 1990s in Japan, this paper empirically shows that bank risk is negatively associated with discretionary accruals, indicating that investors misinterpreted high reported earnings as favorable information about bank financial health. We also show that the negative relationship was very powerful prior to the major bank failures in late 1997 and 1998, but it diminished subsequent to the failures. We conclude that investors started to anticipate potential manipulation of financial reports by bank managers more rationally after the major bank failures. Review of Quantitative Finance and Accounting Springer Journals

The Relationship Between Bank Risk and Earnings Management: Evidence from Japan

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Kluwer Academic Publishers
Copyright © 2004 by Kluwer Academic Publishers
Finance; Corporate Finance; Accounting/Auditing; Econometrics; Operation Research/Decision Theory
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