Di Gong: (University of International Business and Economics) - Branching and dress-up of financial reports: Evidence from the dynamics of loan loss provisions and earnings management in Chinese banks
Co-authors: Tianshi Li (University of International Business and Economics, Beijing) and Jigao Zhu (University of International Business and Economics, Beijing)
Do banks dress up regulatory variables when applying for inter-province branching? We study this issue by exploiting the unique setting in China, where the application of city commercial banks for inter-province expansion needs approval from local regulators. As loan loss provisions (LLPs) is carefully considered in the evaluation, banks have incentives to dress up LLPs around expanding to another province. We find evidence that banks raise LLPs before applying for branching and then lower LLPs for earnings management after branching.
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