Do International Financial Reporting Standards Influence Malaysian and Nigerian Banks Earnings Management Goals?

Abstract

International Financial Reporting Standards (IFRS) was made compulsory for European firms beginning from 1 January, 2005. This has attracted several studies on the impact of IFRS adoption on European manufacturing/sales-based firms’ earnings management and its goals. However, Malaysia and Nigeria mandatorily adopted IFRS effective from 1 January, 2012. Thus, this study is one of the limited studies that have investigated the impact of the recent Malaysia and Nigeria adoption of IFRS on earnings management goals of Malaysian and Nigerian banks. This study used the whole Malaysian and Nigerian banks and data were collected for a period of 6 (2008-2013) years. Logit regression analyses were performed to investigate both earnings management goals of reporting small positive profits and the speed by which losses are recognized. For Malaysian banks both results are in agreement with expectations. First findings suggest that under MFRS, banks tend to manage their profits figures less frequently in order to report small positive profit rather than negative amounts as opposed to the Malaysia GAAP. Also, results demonstrate that under MFRS banks tend to recognize large losses readily than under FRS. However, for Nigerian banks, results establish that under SAS banks tend to manage their profits figures less frequently in order to report small positive profit rather than negative amounts, as opposed to the IFRS. Yet, under IFRS, banks tend to recognize large losses readily than under SAS. Except for Nigerian banks’ earnings management goals of reporting small positive profits result, overall, findings confirm the superiority of IFRS over Malaysia and Nigeria GAAPs in reducing earnings management. Given this results, this study recommends that IFRS should be globally adopted by banks.