Competition and profit hiding: evidence from banks in China
Abstract
Purpose
The purpose of this paper is to investigate the quality of financial reporting by banks in China, and the profit hiding behavior of banks in particular.
Design/methodology/approach
Reported profit is compared with actual profit using multiple regression analysis. The identification strategy allows the authors to quantify the degree of profit hiding in banking institutions.
Findings
Profit hiding exists in the whole banking sector in China regardless of the ownership structure of individual banks, though joint-stock banks have higher degree of profit hiding. Banks that are more financially constrained hide more profit than those less constrained ones. The competition in the banking industry competition impacts the extent of profit hiding, with higher competition being associated with lower degree of profit hiding.
Research limitations/implications
This paper documents the prevailing behavior of profit hiding in Chinese banks. It raises issues regarding the conventional methods of measuring bank efficiencies using accounting information reported by banking institutions.
Originality/value
This paper empirically examines the profit hiding behavior of banks in a transitional country.
Keywords
Acknowledgements
This research project has been generously funded by the National Social Science Foundation (NSSF) of China: NSSF Grant 13&ZD016 and 12AZD095 (Desheng Yin), NSSF Grant 13CTJ003 (Dawei Jin). The authors also thank for financial support from program for New Century Excellent Talents by Ministry of Education of China (Grant NCET-13-0207), and “Shu Guang” project supported by Shanghai Municipal Education Commission and Shanghai Education Development Foundation (Grant 12SG27). All errors are authors.
Citation
Jin, D., Liu, J., Liu, L. and Yin, D. (2014), "Competition and profit hiding: evidence from banks in China", Managerial Finance, Vol. 40 No. 10, pp. 1040-1051. https://doi.org/10.1108/MF-11-2013-0315
Publisher
:Emerald Group Publishing Limited
Copyright © 2014, Emerald Group Publishing Limited