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Article
Publication date: 7 February 2022

Peterson K. Ozili

This paper examines the determinants of bank income smoothing using loan loss provisions in the United Kingdom or Great Britain from 1999 to 2017.

Abstract

Purpose

This paper examines the determinants of bank income smoothing using loan loss provisions in the United Kingdom or Great Britain from 1999 to 2017.

Design/methodology/approach

The study used ordinary least square (OLS) regression and applying the HAC robust standard error correction test.

Findings

The findings showed that UK banks use loan loss provision for income smoothing purposes. Income smoothing is greater in times of high economic policy uncertainty. The extent of bank income smoothing is reduced by foreign bank presence, UK GAAP adoption, IFRS9 adoption, and high levels of voice and accountability. Also, there is reduced income smoothing using loan loss provisions during a financial crisis and in periods of economic prosperity.

Research limitations/implications

The implication is that economic conditions, institutional governance and accounting disclosure rules can influence the extent of bank income smoothing in the United Kingdom. The findings of the study contribute to several studies that explore the determinants of bank income smoothing.

Originality/value

No study has extensively examined the determinants of bank income smoothing in Great Britain or the United Kingdom. The present study fills this gap in the literature.

Details

Journal of Economic and Administrative Sciences, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 2054-6238

Keywords

Article
Publication date: 2 February 2023

Peterson K. Ozili

This paper aims to analyse the role of central bank digital currency (CBDC) in bank earnings management and focus on how CBDC activity might influence banks to engage in accrual…

Abstract

Purpose

This paper aims to analyse the role of central bank digital currency (CBDC) in bank earnings management and focus on how CBDC activity might influence banks to engage in accrual earnings management using loan loss provisions (LLPs) and the implications for earnings quality.

Design/methodology/approach

The paper used conceptual discourse analysis to explain the role of CBDC in bank earnings management.

Findings

Banks will use accruals, such as LLPs, to manage earnings when CBDC-induced bank disintermediation leads to a reduction in bank deposits, a reduction in bank lending and a likely reduction in reported earnings. Bank managers will mitigate the reduction in reported earnings by lowering discretionary LLPs to increase reported earnings.

Originality/value

The recent emergence of CBDC in the digital currency universe has led to increased research interest on the role of CBDC in corporations and society. This study contributes to the literature by focusing on banks, and examining the effect of CBDC on bank earnings management.

Article
Publication date: 1 July 2021

Peterson K. Ozili

This paper aims to examine whether African banks audited by a Big 4 auditor use loan loss provisions (LLPs) for earnings management purposes before, during and after the global…

Abstract

Purpose

This paper aims to examine whether African banks audited by a Big 4 auditor use loan loss provisions (LLPs) for earnings management purposes before, during and after the global financial crisis. It focuses on income smoothing as a type of earnings management.

Design/methodology/approach

The study analyzed banks in 21 African countries from 2002 to 2014. The estimation techniques used are the fixed effect regression technique, descriptive statistic and Pearson correlation statistic. The model used in the study expresses LLPs as a function of its discretionary and non-discretionary determinants.

Findings

African banks audited by Big 4 auditors use LLPs to smooth income and the incentive to smooth income is greater during an economic downturn or recession. Also, African banks audited by a Big 4 auditor use income smoothing to lower high earnings during the financial crisis and in the pre-financial crisis period but not in the post-financial crisis period.

Originality/value

The literature shows that the presence of Big 4 auditors improves earnings quality. The direct impact of Big 4 auditors on earnings management in African banks has received little attention in the literature, and the impact of audit quality on bank earnings smoothing particularly in Africa is yet to be known.

Details

Journal of Financial Reporting and Accounting, vol. 20 no. 2
Type: Research Article
ISSN: 1985-2517

Keywords

Open Access
Article
Publication date: 21 February 2022

Peterson K. Ozili

This paper examines the correlation of economic policy uncertainty (EPU) with nonperforming loans and loan loss provisions for 22 major developed countries over the 2008–2017…

3055

Abstract

Purpose

This paper examines the correlation of economic policy uncertainty (EPU) with nonperforming loans and loan loss provisions for 22 major developed countries over the 2008–2017 period.

Design/methodology/approach

The study used the Pearson correlation methodology to assess the correlation between EPU, bank nonperforming loans and loan loss provisions.

Findings

The findings reveal that EPU is negatively correlated with nonperforming loans and loan loss provisions in the banking sector of EU countries but not for non-EU countries. Also, EPU is negatively correlated with nonperforming loans in the banking sector of the most advanced economies – the G7 countries, while loan loss provisions are more responsive to changes in EPU than NPLs in EU countries.

Practical implications

The implication of the findings is that the correlation of EPU with loan loss provisions and nonperforming loans is influenced by regional characteristics.

Originality/value

This study is the first to analyze the association of EPU with bank nonperforming loans and loan loss provisions under regional classifications such as the EU, non-EU and the G7 countries. This study provides insights on how regional differences might explain the co-movement of EPU with bank nonperforming loans and loan loss provisions.

Details

Asian Journal of Economics and Banking, vol. 6 no. 2
Type: Research Article
ISSN: 2615-9821

Keywords

Article
Publication date: 13 June 2023

Peterson K. Ozili

This study aims to examine the effect of gender equality on financial stability and financial inclusion for 14 developing countries using yearly data from 2005 to 2021.

Abstract

Purpose

This study aims to examine the effect of gender equality on financial stability and financial inclusion for 14 developing countries using yearly data from 2005 to 2021.

Design/methodology/approach

The two-stage least squares regression estimation and the generalized linear model regression estimation were used to investigate the effect of gender equality on financial stability and financial inclusion.

Findings

Gender equality has a significant positive effect on financial stability and financial inclusion in developing countries. Gender equality has a significant positive effect on financial stability and financial inclusion in African countries. Gender equality has a significant positive effect on financial stability but not on financial inclusion in non-African countries.

Originality/value

Little attention has been paid to the role of gender equality in promoting financial stability and financial inclusion. The authors address this issue in this study.

Details

Social Responsibility Journal, vol. 20 no. 2
Type: Research Article
ISSN: 1747-1117

Keywords

Book part
Publication date: 16 September 2022

Peterson K. Ozili

Purpose: In this chapter, the author evaluates the association between bank loan loss provisions (LLP) and the pre-provisions earnings of UK banks during the first-wave of the…

Abstract

Purpose: In this chapter, the author evaluates the association between bank loan loss provisions (LLP) and the pre-provisions earnings of UK banks during the first-wave of the COVID-19 pandemic. A positive co-movement between the two variables indicates income smoothing.

Methodology: Graphical analysis, correlation analysis and regression analysis are used to assess the relationship between income smoothing and bank provisions among UK systemic banks.

Findings: The findings show that LLP have an inverted V-shaped property during the first-wave of COVID-19 pandemic. LLP reached its highest level at the peak of the pandemic in Q2 2020 and declined in the subsequent quarters. The regression results show that LLP are positively related to pre-provisions earnings during the pandemic quarters and in the pre-pandemic quarters. The relationship is stronger in the pandemic quarters and indicates higher income smoothing in the pandemic quarters. The correlation results also show a strong positive correlation between bank provisions and pre-provisions earnings in the pandemic period. In the individual bank analysis, three of the four systemic banks exhibit higher income smoothing during the pandemic quarters.

Implication: UK systemic banks engaged in earnings management as a coping mechanism to mitigate the effect of the pandemic on their profits.

Need for the study/originality: This chapter is the first to provide a preliminary analysis of income smoothing among banks during the early stages of the COVID-19 pandemic.

Details

The New Digital Era: Other Emerging Risks and Opportunities
Type: Book
ISBN: 978-1-80382-983-8

Keywords

Article
Publication date: 31 December 2021

Peterson K. Ozili and Honour Ndah

This paper investigates the effect of financial development on bank profitability. The authors examine whether financial development is an important determinant of bank…

Abstract

Purpose

This paper investigates the effect of financial development on bank profitability. The authors examine whether financial development is an important determinant of bank profitability.

Design/methodology/approach

The ordinary least square and the generalized method of moments regression methods were used to analyze the impact of financial development on the profitability of the Nigerian banking sector.

Findings

The authors find a significant negative relationship between the financial system deposits to GDP ratio and the non-interest income of Nigerian banks. This indicates that higher financial system deposits to GDP depresses the non-interest income of Nigerian banks. The result implies that the larger the size of the Nigerian financial system, the lower the profitability of banks in Nigeria. Also, the authors observe that bank concentration, nonperforming loans, cost efficiency and the level of inflation are significant determinants of the profitability of Nigerian banks.

Practical implications

It is recommended that regulators should establish market-enabling policies that encourage new banks to emerge in the banking industry. The entry of new banks can lead to increase in financial system deposits and credit supply for economic growth. Regulators also need to understand the role of Nigerian banks in promoting financial development and find ways to collaborate with banks towards financial sector development. Another implication of the findings for asset managers is that asset managers will need to take into account the prevailing level of financial development, particularly the size of the financial system, in their asset pricing and investment decisions. This will ensure that investors get value for their investments in Nigeria. The financial implication of the study is that the level of financial development in Nigeria can improve the finance-growth linkages in Nigeria through the efficient allocation of credit and capital to crucial sectors of the Nigerian economy to spur growth in those sectors.

Originality/value

Evidence dealing with how financial development affects the profitability of the banking sector in African countries is scarce in the literature, and is completely absent for Nigeria. This paper addresses this research gap.

Article
Publication date: 2 October 2018

Peterson K. Ozili and Erick R. Outa

The purpose of this paper is to examine the extent of bank earnings smoothing during mandatory International Financial Reporting Standards (IFRS) adoption in Nigeria, to determine…

Abstract

Purpose

The purpose of this paper is to examine the extent of bank earnings smoothing during mandatory International Financial Reporting Standards (IFRS) adoption in Nigeria, to determine whether mandatory IFRS adoption increased or decreased income smoothing among Nigerian banks.

Design/methodology/approach

The authors employ panel regression methodology to estimate the association between loan loss provisions (LLPs) and bank earnings.

Findings

The authorse find that the mandatory adoption of IFRS is associated with lower earnings smoothing among Nigerian banks, which implies that Nigerian banks do not use LLPs to smooth reported earnings during the mandatory IFRS adoption period. The authors find evidence for earnings smoothing via LLP during voluntary IFRS adoption. Earnings smoothing is not significantly associated with listed and non-listed Nigerian banks during voluntary and mandatory IFRS adoption. Overall, the findings indicate that mandatory IFRS adoption improves the informativeness and reliability of LLPs estimate by discouraging Nigerian banks from influencing LLPs for earnings smoothing purposes during the mandatory IFRS adoption. The findings of this paper are relevant to the debate on whether IFRS reporting improves the quality of financial reporting among firms in Nigeria.

Practical implications

Overall, the findings indicate that mandatory IFRS adoption improves the informativeness and reliability of LLPs estimate by discouraging Nigerian banks from influencing LLPs estimates to smooth earnings during the period of mandatory IFRS adoption.

Social implications

The implication of the study is that IFRS has higher accounting quality than local GAAP in Nigeria as it improves the quality and informativeness of accounting numbers (LLPs and earnings) reported by Nigerian banks during the period examined.

Originality/value

This study is the first attempt to focus on income smoothing during mandatory IFRS adoption in Nigeria.

Details

African Journal of Economic and Management Studies, vol. 10 no. 1
Type: Research Article
ISSN: 2040-0705

Keywords

Article
Publication date: 23 November 2022

Peterson K. Ozili

The purpose of this study is to discuss the role of central bank digital currency (CBDC), Fintech and cryptocurrency for financial inclusion and financial stability.

2184

Abstract

Purpose

The purpose of this study is to discuss the role of central bank digital currency (CBDC), Fintech and cryptocurrency for financial inclusion and financial stability.

Design/methodology/approach

This study used critical discourse analysis to identify the benefits and risks of CBDC, Fintech and cryptocurrency for financial inclusion and financial stability.

Findings

Fintech, CBDC and cryptocurrency can increase financial inclusion by providing an alternative channel through which unbanked adults can access formal financial services. CBDC and Fintech services have the potential to preserve financial stability, while cryptocurrency presents financial stability risks that can be mitigated through effective regulation. This paper also identified some problems of CBDC, Fintech and cryptocurrency for financial inclusion and financial stability. This paper offered some insight about the future of financial inclusion and the future of financial stability.

Practical implications

Although CBDC, Fintech or cryptocurrency can extend financial services to unbanked adults and offer cost-efficient advantages, there are risk considerations that need to be taken into account when using CBDC, Fintech and cryptocurrency to increase financial inclusion and to preserve financial stability.

Originality/value

The literature has not identified the combined role of CBDC, Fintech and cryptocurrency for financial inclusion and financial stability. To the best of the author’s knowledge, this paper is the first paper to assess the combined role of CBDC, Fintech and cryptocurrency for financial inclusion and financial stability.

Details

Digital Policy, Regulation and Governance, vol. 25 no. 1
Type: Research Article
ISSN: 2398-5038

Keywords

Article
Publication date: 25 May 2020

Peterson K. Ozili

This paper aims to critically assess digital finance as a pro-poor intervention in the development finance space.

2253

Abstract

Purpose

This paper aims to critically assess digital finance as a pro-poor intervention in the development finance space.

Design/methodology/approach

Using critical policy discourse analysis, this paper explains the turn from microfinance to digital finance, and thereafter discusses four issues: the lack of evidence that digital finance for poor people actually promotes socioeconomic development; the risks that poor people are exposed to, which arises from their exposure to digital finance technology; the lack of evidence that digital finance actually brings poor people immediate benefits; and the weak business rationale for digital finance.

Findings

The expectation for digital finance serving as a major pro-poor private sector intervention lacks justification.

Originality/value

The paper reflects on the effect of digital finance for poor people.

Details

Digital Policy, Regulation and Governance, vol. 22 no. 2
Type: Research Article
ISSN: 2398-5038

Keywords

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