The Effects Of Legal Institutions And Bank Supervision Frameworks On The Earnings Management By Banks Around The World
In this paper, the authors examine international differences in bank earnings management around the world. Following Leuz et al. (2003), they argue that bank earnings management is closely linked to private benefits of insiders. As a result, bank earnings management should be negatively related to institutional factors such as legal protection on investors and bank supervision policies that encourage market discipline on banks. Consistent with this prediction, they provide evidence that earnings management is less pervasive for banks in countries where investors are better protected and where supervision policies strongly encourage private-sector monitoring on banks.