Income Smoothing and Financial Performance of Tier 11 Commercial Banks in Kenya (Published)
The most commonly used Income smoothing practices are attributed to bad corporate governance. Bank managers and bank accountants use strategies that seek to erode profit mechanisms that amount to severe consequences for the entire banking and finance industry. Therefore the purpose of this study was to determine the effect of income smoothing practices on financial performance of Tier II commercial banks in Kenya. The study was based on information theory, agency theory and positive accounting theory. This study adopted an exploratory research design in explaining the relationship between the independent and dependent variables. The target population for the study included10 CBK licensed tier II commercial banks in Kenya where 40 respondents were included: purposive sampling technique was used to select Finance managers, internal auditors and accountants. The researcher obtained sample from all the 10 tier II commercial banks in their head offices in Nairobi, Kenya. Primary data was collected using a structured Questionnaire while complimentary data was collected from published financial statements from CBK Supervisory reports. The data was analyzed using the Statistical Package for Social Sciences (SPSS) version 20, by use of both descriptive and inferential statistics. The study results revealed that Income Smoothing had an insignificant coefficient of 0.296 with the Financial Performance of tier II commercial banks in Kenya.. According to the findings, exclusion of liabilities activities are the source of funds for the banks. Based on these findings, the study recommended that watchdogs of the accounting practices need to exercise strict oversight on the extent to which Commercial bank adopt income smoothing issues. The study findings would form a timely and solid foundation that the banking industry pundits and policy makers would base most of their policy priorities in responding to the volatile accounting situation in Kenya today.
The Influence of Forced Financial Reporting Disclosures On Behaviour Of Reporting Firms: Evidence From Nigeria (Published)
This paper examines the influence of forced financial reporting disclosures on the behavior of reporting firms in the Nigerian banking industry. Market size, asset base and profitability were used as the selection criterion. The sample size represents seventy percent of the population. Forced disclosure metrics used were capital adequacy and liquidity ratios while reporting behavior was measured using income smoothing and loan loss provisioning. A regressed forced disclosure metric was performed on variables of the behavior of the reporting firm. Results suggest correlation between forced disclosure and the behavior of reporting firms. No significant relationship existed between capital adequacy and liquidity ratio with income smoothing. Correlation between capital adequacy ratio and loan loss provisioning behavior was significant suggesting heavy reliance on loan loss provisioning to smooth income in order to meet regulatory requirements.
MANDATORY ADOPTION OF IASB STANDARDS, INCOME SMOOTHING, AND REACTIONS OF THE JORDANIAN EMERGING ASE MARKET (Published)
Our paper aims to study the impact of the regulatory disclosure requirements enacted in 2004 on the income smoothing behaviour (a proxy for quality of financial reporting) and on firm valuation (measured by Topins’ q ratio) of Jordanian listed firms on Amman Stock Exchange (ASE). Our perception is that the new disclosure requirements of 2004 hold higher quality as a reporting system for the ASE market than did the one of 1998. A higher reporting quality is expected as the new disclosure requirements of 2004 had removed the conditions over adopting IASB-based standards that existed under the previous regulatory disclosure requirements along with bringing new structural and procedural changes. Previous literature suggested that IASB standards have been long perceived as a set of high quality reporting standards. Under such perceptions, we expect the reporting quality to increase, which in return, would impact the market valuation for listed firms. To perform our study, we selected a sample of 94 out of 133 publicly listed service and industrial Jordanian firms at the ASE. The sample consists of 58 industrial and 36 service listed firms. Our findings indicate a positive impact on both of the quality of reporting and market valuation of service firms with the new regulation of 2004 compared to a negative impact on the quality of reporting and a positive impact on market valuation of industrial firms.