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The Use Of Loan Loss Provisions For Earnings, Capital Management And Signalling By Australian Banks, Asokan Anandarajan, Iftekhar Hasan, Cornelia Mccarthy

CRIF Working Paper series

This research is motivated by the fact that there is a paucity of research on the earnings management practices of banks in Australia. Research on the practices of North American, European and Asian banks provided conflicting evidence. In this study, we examine whether Australian banks engage in earnings, capital management and signalling, and, if so, the extent to which loan loss provisions (LLPs) are used for this purpose. Our results indicate that banks in Australia use loan loss provisions to manage earnings. Further, listed commercial banks engage more aggressively in earnings management using LLPs than other banks. We also find …