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The Relationship Between Bank Risk and Earnings Management: Evidence from Japan

  • Yukihiro Yasuda
  • Shin'ya Okuda
  • Masaru Konishi
Article

Abstract

Using stock price data drawn from the 1990s in Japan, this paper empirically shows that bank risk is negatively associated with discretionary accruals, indicating that investors misinterpreted high reported earnings as favorable information about bank financial health. We also show that the negative relationship was very powerful prior to the major bank failures in late 1997 and 1998, but it diminished subsequent to the failures. We conclude that investors started to anticipate potential manipulation of financial reports by bank managers more rationally after the major bank failures.

bank risk earnings management discretionary accruals inefficient market 

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Copyright information

© Kluwer Academic Publishers 2004

Authors and Affiliations

  • Yukihiro Yasuda
    • 1
  • Shin'ya Okuda
    • 2
  • Masaru Konishi
    • 3
  1. 1.Department of ManagementTokyo Keizai UniversityTokyoJapan Tel.:
  2. 2.Faculty of Distribution and Communication SciencesOsaka Gakuin UniversityOsakaJapan Tel.:
  3. 3.Graduate School of Commerce and ManagementHitotsubashi UniversityTokyoJapan Tel.:

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