Managing financial reports of commercial banks: the influence of taxes, regulatory capital, and earnings

Article Abstract:

A study is conducted to investigate the strategy used by banks of manipulating the timing and volume of transactions and accruals to meet their primary capital, tax and earnings targets. It tests the hypothesis that bank executives annually reduce the total costs of deviating from their primary capital, tax and earnings objectives and of using their own judgment over five transaction types: loan loss provisions, loan charge-offs, pension settlement transactions, miscellaneous gains and losses, and issuance of securities. This cost minimization problem is resolved using a system of five equations. The results suggest that loan loss provisions, loan charge-offs and the decision to issue securities are used to manage capitals, while pension settlement gains and miscellaneous gains and losses are employed to manage earnings. Findings also indicate that miscellaneous gains and losses are used to manage capital.

Commercial Banks, Commercial Banking, Banking industry, Bank management

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Financial reporting, supplemental disclosures, and bank share prices

Article Abstract:

There has been an increase in the volume of required financial disclosures since 1975. This phenomenon is probably the result of a shift in emphasis from the use of financial statements as complete measures of net income and the market value of common stock to viewing financial statements as a source of information on which users base their own assessments of market value. Research indicates that supplemental data delineating risk in the areas of default, and interest rates explain the variations in the market-to-book ratios of common stocks of banks more than allowances for loan losses and conventional variables do. Non-performing loans are impaired to a greater degree than indicated by the allowance for loan losses, resulting in the capital markets assessing the market value of the loans below reported book value.

Prices and rates, Stocks, Capital market, Capital markets, Stock prices, Loans

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The information content of nonearnings accounting numbers as earnings predictors

Article Abstract:

The nonearnings figures in a company's annual report contain information about the direction of its next year's earnings change that is not apparent from the firm's current earnings. A valuation connection between this annual-report-based prediction and stock returns is also available. During the release of the annual report, the stock return response to the earnings prediction is above its response to current earnings.

Earnings per share, Managerial accounting

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