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Does Earnings Management Affect Banks’ Cost of Funding? An Empirical Investigation Across an European Sample

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Bank Funding, Financial Instruments and Decision-Making in the Banking Industry

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Abstract

Loan loss provisions which are the main components, by which managers handle earnings, are used discretionally to smooth earnings, manage capital requirements and increase the stock market valuation. However managers’ discretionary behavior might have a negative effect, since hidden risks can alter the risk profile of a bank. In this paper, we investigate whether such a discretionary component of provisioning has an impact on the cost of funding. We use panel data regression on a sample of European banks, during the period 2005–2013. Our finding suggests that the discretionary use of provisioning affects the cost of funding, due to the increase of the overall risk to the bank.

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Author information

Authors and Affiliations

  1. University of Udine, Udine, Italy

    Federico Beltrame & Alex Sclip

  2. Luiss Guido Carli University, Rome, Italy

    Daniele Previtali

Authors
  1. Federico Beltrame
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  2. Daniele Previtali
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  3. Alex Sclip
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Corresponding author

Correspondence to Daniele Previtali .

Editor information

Editors and Affiliations

  1. Bangor University, United Kingdom

    Santiago Carbó Valverde

  2. University of Granada, Spain

    Pedro Jesús Cuadros Solas

  3. University of Granada, Spain

    Francisco Rodríguez Fernández

Appendices

Appendix A

Table 2.4 Reports sample correlations of the variables involved in our analysis
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Appendix B

Given the characteristics of the variables used in our empirical analysis, we decided to run the Variance Inflation Factor test (VIF).

Table 2.5 VIF test results
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Beltrame, F., Previtali, D., Sclip, A. (2016). Does Earnings Management Affect Banks’ Cost of Funding? An Empirical Investigation Across an European Sample. In: Carbó Valverde, S., Cuadros Solas, P., Rodríguez Fernández, F. (eds) Bank Funding, Financial Instruments and Decision-Making in the Banking Industry. Palgrave Macmillan Studies in Banking and Financial Institutions. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-319-30701-5_2

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  • DOI: https://doi.org/10.1007/978-3-319-30701-5_2

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  • Publisher Name: Palgrave Macmillan, Cham

  • Print ISBN: 978-3-319-30700-8

  • Online ISBN: 978-3-319-30701-5

  • eBook Packages: Economics and FinanceEconomics and Finance (R0)

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