Earnings Management Connected to the Profitability Thresholds in Central European Banking Systems (Zarządzanie Wynikiem Finansowym W Bankach Z Europy Środkowo-Wschodniej Związane Z Progowymi Wartościami Rentowności)

Abstract

This article investigates the importance attached by commercial banks from Central European countries to the profitability thresholds. We assume that a given threshold is important when a bank manages earnings in order to surpass it. As a result we can observe discontinuities in profitability distributions around the relevant thresholds. This method allowed us to establish that banks from Central European countries tried to avoid losses but they did not seem to care about profitability decreases. This outcome is insensitive to the divisions of the sample according to the criteria of: geographical location, quality of capital base, being publicly held and macroeconomic situation. The strength of the loss avoiding behavior weakened after 2004 probably due to the institutional changes in countries under study.

Note: Downloadable document is in Polish.

Keywords: earnings management, thresholds, banking

JEL Classification: G21