EU Banks’ Accounting Policy Decisions and Market Influence

This study investigates the impact that market discipline mechanisms have on European Union (EU) banks’ accounting policy decisions. We investigate association between level of loan loss provisions (LLPs) with earnings before and taxes when depositors appear to withdraw their funds demand higher deposit rates. examine whether motivates banks adjust through accruals. Empirical findings suggest for rates limits management’s discretion. By contrast, withdrawals encourage managers use income smoothing via LLPs. The observed associations be conditioned by systemic importance capital adequacy levels.