This study examines the relationship between bank efficiency and earnings management (EM) using a large sample of banks from 22 frontier market countries from 2011 - 2018, We hypothesise that EM via loan loss provision (LLP) and loan loss reserves (LLR) adversely impacts bank efficiency. Employing stochastic frontier analysis as a technical efficiency measurement, and random effects and truncated regression to reveal their relationship, we find support for this prediction. Also, in three of the five geographic regions tested, efficiency scores are higher for larger banks. |
