Earnings Management in Bank Industry

Performing univariate and multivariate analysis on the population of listed banks in Italy, this paper tests the fol-lowing hypotheses: 1) whether Earnings (EM) and capital (MCAP) management are performed via Loan Loss Provision - LLP (2002-2011 period); 2) whether the association of LLP with earnings and capital management is significantly changed under IFRS for listed banks in Italy (2005-2011 period); 3) whether crisis changes the association of LLP and earnings – capital management (2008-2011 period). Coherently with previous literature, in Italian listed bank in the period 2002 – 2011 managers employ LLP for opportunistic behavior. IFRS reduce EM. Financial crisis decreases earnings and capital management based on accruals, in riskier banks; however this result should be further analyzed by future research on cash concern. This is one of the first paper that ana-lyze EM in banking industry in Italy, a country with an economic system focused overall on financial resources provided by banks and other financial institutions.