Loan Loss Provisions, Earnings Smoothing and Capital Management Under IFRS: The Case of Deposit Money Banks in Nigeria
American Journal of Management Science and Engineering
Volume 2, Issue 4, July 2017, Pages: 58-64
Received: Jun. 28, 2017; Accepted: Jul. 14, 2017; Published: Aug. 15, 2017
Views 1918      Downloads 110
Clement Chiahemba Ajekwe, Department of Accounting, Benue State University, Makurdi, Nigeria
Adzor Ibiamke, Department of Accounting, Benue State University, Makurdi, Nigeria
Marie Fagson Silas, Internal Audit Department, Nasarawa State University, Keffi, Nigeria
Article Tools
Follow on us
The paper examines the impact of IFRS adoption on the use of loan loss provisions (LLPs) to manage earnings and capital by listed deposit money banks in Nigeria. The study employed an ex-post facto research design and a sample of fourteen (14) Deposit Money Banks listed on the Nigerian Stock Exchange. Data was obtained from 2009 to 2014 to capture the pre- and post- IFRS adoption periods. Using paired sample t-test, we find quantitative evidence to the effect that there are significant increase in the means of loan loss provisioning, and capital management by Deposit Money Banks in Nigeria in the post IFRS adoption period compared to the pre-IFRS adoption period. However, the levels of earnings smoothing are significantly lower in the post IFRS period. The implication of this finding is that adoption of IFRS improved earnings quality in the sense of reduced earnings smoothing.
Earnings Smoothing, Capital Management, IFRS, Loan Loss Provision, Nigeria
To cite this article
Clement Chiahemba Ajekwe, Adzor Ibiamke, Marie Fagson Silas, Loan Loss Provisions, Earnings Smoothing and Capital Management Under IFRS: The Case of Deposit Money Banks in Nigeria, American Journal of Management Science and Engineering. Vol. 2, No. 4, 2017, pp. 58-64. doi: 10.11648/j.ajmse.20170204.12
Copyright © 2017 Authors retain the copyright of this article.
This article is an open access article distributed under the Creative Commons Attribution License ( which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.
Wahlen J. M. (1994). The nature of information in commercial bank loan loss disclosures. The Accounting Review, 69, 455-478.
Kanagaretnam, K., Lobo, G. J. & Yang, D. H. (2004). Joint tests of signalling and income smoothing through bank loan loss provisions. Contemporary Accounting Research, 21(4), 843-884.
Pérez, D., Salas-Fumás, V. & Saurina, J. (2008). Earnings and capital management in alternative loan loss provision regulatory regimes. European Accounting Review, 17, 423-445.
El-Sood, H. A. (2012). Loan loss provisions and income smoothing in US banks pre and post the financial crisis. International Review of Financial Analysis, 25, 64-72.
Balboa, M., López-Espinosa, G. & Rubia, A. (2013). Nonlinear dynamics in discretionary accruals: An analysis of bank loan-loss provisions. Journal of Banking & Finance, 37(12), 5186-5207.
Moyer. S. E. (1990). Capital adequacy ratio regulations and accounting choices in commercial banks. Journal of Accounting and Economics, 13(2), 123-154.
Beatty. A., Chamberlain, S. L. & Magliolo, J. (1995). Managing financial reports of commercial banks: The Influence of taxes, regulatory capital and earnings. Journal of Accounting Research, 33(2), 231-262.
Ahmed, A. S., Takeda, C. & Thomas, S. (1999). Bank loan loss provisions: A re-examination of capital management, earnings management and signalling effects. Journal of Accounting and Economics, 28, 1-25.
Wall, L. D. & Koch, T. W. (2000). Bank loan-loss accounting: A review of theoretical and empirical evidence. Economic Review, (2), 1-20.
Nichols, D., Wahlen, J. & Wieland, M. (2009). Publicly-traded versus privately-held: implications for bank profitability, growth risk, and accounting conservatism. Review of Accounting Studies, 14, 88-122.
Angklomkliew, S., George, J. & Packer, F. (2009). Issues and developments in loan loss provisioning: The case of Asia. BIS Quarterly Review, December, 69 – 83.
Ronen, J. & Yaari, V. (2008). Earnings management: Emerging insights in theory, practice, and research. New York: Springer.
Stolowy, H. & Bretton, G. (2004). Accounts manipulation: A literature review and proposed conceptual framework. Review of Accounting and Finance, 3(1), 5-66.
Albrecht, W. D. & Richardson, F. M. (1990). Income smoothing by economic sector. Journal of Business Finance and Accounting, 17, 713-730.
Jiang, G., Lee, C. & Zhang, Y. (2005). Information uncertainty and expected returns. Review of Accounting Studies, 10 (2-3), 185 – 221.
Tucker, X. J. & Zarowin, P. (2006). Does income smoothing improve earnings informativeness? The Accounting Review, 81(1), 251-270.
Wang, Z. & Williams, T. H. (1994). Accounting income smoothing and stockholder wealth. Journal of Applied Business Research, 10(3), 96-104.
Graham, J. R., Harvey, C. R. & Rajgopal, S. (2005). The economic implications of corporate financial reporting. Journal of Accounting and Economics, 40(1-3), 3 – 73.
Shaharudin, R. S. (2004) A review on accounts manipulation via loan loss provisions to manage regulatory capital and earnings along business cycle. Juma Ekonomi Malaysia, 38, 99•123.
Anandarajan, A., Hasan, I. & McCarthy, C. (2007). Use of loan loss provisions for capital, earnings management and signalling by Australian banks. Accounting and Finance, 47(3), 357-79.
Greenawalt, M. B. & Sinkey, Jr, J. F. (1988). Bank loan-loss provisions and the income-smoothing hypothesis: An empirical analysis 1976-1984. Journal of Financial Services Research, 1(4), 301-318.
Wetmore, J. L. & Brick, J. R. (1994). Loan loss provisions of commercial banks and adequate disclosure: A note. Journal of Economics and Business, 46, 299-305.
Gebhardt, G. & Novotny-Farkas, Z. (2011). Mandatory IFRS adoption and accounting quality of European banks. Journal of Business Finance and Accounting, 38 (3/4), 289-333.
Onalo, U., Mohd, L. & Ahmad, K. (2014). The effects of changes in accounting standards on earnings management of Malaysia and Nigeria banks. European Journal of Accounting Auditing and Finance Research, 2(8), 15-42.
Leventis, S., Dimitropoulos, P. E. & Anandarajan, A. J (2011). Loan loss provisions, earnings management and capital management under IFRS: The case of EU commercial banks. Journal of Financial services research, 40, 103-122. doi: 10.1007/s 10693-010-0096-1.
Bernard. V. L. & Skinner, D. J. (1996). What motivates manager's choice of discretionary accruals? Journal of Accounting and Economics, 22, 313-325.
Scholes, M., Wilson, G. P. & Wolfson, M. (1990). Tax planning, regulatory capital planning and financial reporting strategy for commercial banks. Review of Financial Studies, 3, 625-650.
Anandarajan, A., Hasan, I. & Lozano-vivas, A. (2003). The role of loan loss provisions in earnings management, capital management, and signalling: The Spanish experience. Advances in International Accounting, 16, 43-63.
Leuz, C. Nanda, D. & Wysocki, P. (2003). Earnings management and investor protection: An international comparison. Journal of Financial Economics, 69, 505-527.
Myers, J. N., Myers, L. A. & Skinner, D. J. (2006): Earnings momentum and earnings management. Accessed on 11 May 2017 at SSRN: or
Land, J. & Lang, M. H. (2002). Empirical evidence on the evolution of international earnings. The Accounting Review, 77(s-1), 115-133.
Zarowin, P. (2002). Does income smoothing make stock prices more informative? NYU Working Paper. Accessed on 8 May 2017 at SSRN:
Science Publishing Group
1 Rockefeller Plaza,
10th and 11th Floors,
New York, NY 10020
Tel: (001)347-983-5186