The effect of earnings management on bank efficiency

Mohd Fahmee Ab-Hamid, Rozilee Asid, Nor Fatimah Che Sulaiman, Wan Farisan Wan Sulaiman, Elya Nabila Abdul Bahri

Abstract


This paper studies the effects of earnings management practices on bank cost efficiency using banks in five ASEAN countries over the period 1989–2015. By employing Stochastic Frontier Analysis technique for cost efficiency, we find that each country has different efficiency level. Using panel data analysis, we further find that the increase in earnings management practices reduces the bank's efficiency significantly. The findings suggest that the banking supervisors and managers should formulate strategies that focus on the cost efficiency–related initiatives and manages the earnings management practices. With the strategies in place, it could facilitate the economic integration between ASEAN countries.


Keywords


Bank; Cost efficiency; SFA; Earnings management; ASEAN

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