Abstract
We compare the earnings management of privatized banks (PBs) with that of propensity score–matched state-owned banks (SOBs) from the same country and year over the period 2000–2018. Using abnormal loan loss provision and propensity to meet or beat the previous year’s earnings as measures of earnings management, we document that the magnitude and likelihood of PBs’ earnings management are lower than the corresponding values for matched SOBs. We also show that both measures of PBs’ earnings management decrease as the residual state ownership in PBs decreases. Finally, we find that accounting enforcement and bank regulation significantly reduce the difference in both measures of earnings management between PBs and SOBs and attenuate the positive relation between residual state ownership and earnings management of PBs.
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