IFRS 9 and earnings management: the case of European commercial banks

Purpose - This paper examines the impact of International Financial Reporting Standards (IFRS) 9 on earnings management (EM) using data from 2011 to 2019 of 100 commercial banks in Europe.Design/methodology/approach - Using data from 2011 to 2019 of 100 commercial banks in Europe, the authors conducted several empirical investigations to test the mediating role of IFRS 9 on earnings manipulation through loan loss provision (LLP) by banks.Findings - The result shows that the new accounting standards (IFRS 9) significantly affect the way banks report LLP. This paper provides evidence that non-listed banks in the EU engage in EM through LLP following IFRS 9 but experience less volatility of net income following the adoption. The findings indicate that such behaviour by banks cannot be suppressed by level of audit quality; suggesting that an improvement in accounting standards might not always guarantee accounting quality.Originality/value - This finding has some policy implications; and regulators will need to identify additional tools to regulate or supervise EM behaviour.