Title: Earnings management and bank funding

Authors: Van Dan Dang; Hoang Chung Nguyen

Addresses: Department of Finance, Banking University of Ho Chi Minh City, Ho Chi Minh City 700000, Vietnam ' Department of Finance and Banking, Business School, Thu Dau Mot University, Binh Duong Province 820000, Vietnam

Abstract: This paper investigates the impact of earnings management on bank funding. Using a sample of Vietnamese commercial banks between 2007 and 2019, we reveal that greater earnings opacity of banks causes a significant drop in total bank funding. When decomposing total funding into its components, we find that wholesale funds are the primary driver of the result, while no significant effect of earnings manipulation on retail deposits is documented. Further analyses on bank heterogeneity indicate that the unfavourable impact of earnings opacity on banks' wholesale funds is less pronounced for banks that are better capitalised, more liquid, larger in size, more profitable, and less risky. Through this consistent pattern, we can conclude that the financial strength of banks may alleviate the adverse effect of earnings opacity on bank funding. Our findings firmly survive after a series of robustness tests.

Keywords: bank funding; discretionary loan loss provisions; earnings opacity; retail deposits; wholesale funds.

DOI: 10.1504/GBER.2024.135288

Global Business and Economics Review, 2024 Vol.30 No.1, pp.72 - 92

Received: 28 Mar 2022
Accepted: 27 Aug 2022
Published online: 04 Dec 2023 *

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