Effect Of Inflation On Earnings Quality Of Commercial Banks

Earnings is also often referred to as income or profit,the balance of income minus costs.Accounting earnings often contains a variety of information,which is the concentrated reflection of corporate profitability and operating results,and therefore has become an important basis for investors and other stakeholders to understand the business status of the enterprise.Good earnings quality can give full play to the validity of accounting information,reduce the asymmetry of internal and external information,and contribute to the optimal allocation of financial resources and the stability of capital market.On the contrary,the inferior earnings quality not only affects the design and implementation of the internal business strategy of the enterprise,but also reduces the enterprise value and misleads investors.Commercial Banks play an important role in the economic and social development,involving a variety of industries,and the quality of their earnings becomes more important.However,different from general enterprises,the unique operation and management activities of commercial Banks make it relatively easy to change the composition of risky financial assets,and the means of earnings manipulation and management are more hidden.In the economic environment of inflation,commercial Banks' performance,profits,operational risks and competitive position will be affected,and they are also under pressure of higher risk supervisionindicators.Therefore,in order to gain an active advantage in fierce industrial competition or meet certain regulatory requirements,bank managers may manipulate the earnings,conceal the real earnings information,and then affect the earnings quality.Therefore,by combining theory with empirical research,this paper first summarizes the concept of earnings quality and internal and external influencing factors,and on this basis puts forward the key research content of this paper,that is,what impact inflation will have on the earnings quality of commercial Banks;Secondly,based on the information view and the opportunistic earnings management view,this paper took the financial data of China's listed commercial Banks from 2008 to 2017 as the research sample,and comprehensively analyzed the impact of inflation on the earnings quality of commercial Banks from the perspectives of earnings persistence and earnings management degree.In the first part of the empirical study,this paper mainly uses the current domestic and foreign mainstream earnings persistence research method,namely the first-order autoregressive model,to analyze the quarterly data of listed commercial Banks in China from 2008 to 2017.In the empirical study of the second part,this paper mainly adopts the two-stage regression method.The first stage is mainly used to separate the operating earnings management indicators,while the regression model of the second stage mainly studies the impact of inflation on the earnings quality of commercial Banks from the perspective of earnings management.In the empirical research of the second part,because some data cannot be obtained in the bank quarterly report,the bank semi-annual report data is used for analysis in this part of the research.In order to guarantee the reliability of the results,in the robustness test part,this paper take the earnings cash flow forecast ability of commercial Banks for auxiliary test,the reason is that earnings persistence is the premise and foundation of earnings cash flow forecast ability,if inflation results in the decrease of earnings persistence,inevitably will reduce bank earnings cash flow forecast ability based on these information.In addition,considering the possibility of multicollinearity in the earnings persistence model and affecting the research results,this paper eliminates multicollinearity by removing variables that have little impact on the model.In addition,the sample size of semi-annual data is relatively small compared with quarterly data,which may cause errors.Therefore,in the robustness test of the second part of the model,the boot regression was mainly used to solve the deviation caused by too small sample size,and the conclusion of hypothesis 2 was verified by changing the inflation index.The robustness research results showed that the original hypothesis was still supported.According to the research results of this paper and the results of the robustness test,the following conclusions are drawn:first,inflation can,to a certain extent,increase the profits of Banks and make them procyclical;Second,inflation reduces the sustainability of commercial Banks' earnings and their ability to forecast future earnings cash flow,which has a negative impact on earnings quality and is even more pronounced in times of high inflation.Thirdly,inflation prompts commercial Banks to set aside more provisions for controlling loan losses and carry out excessive earnings management operations,leading to the decline in the quality of bank earnings.Based on the above research conclusions,this paper finally proposes Suggestions for investors,internal bank managers and external regulators.This paper enriches the research of external environment on the earnings quality of commercial Banks and provides a starting point for studying the impact of inflation on the financial information of commercial Banks.In terms of research methods,the effects of inflation on the earnings quality of commercial Banks are analyzed comprehensively from the perspectives of earnings persistence and earnings management.However,due to the availability of information,this paper only selected China's listed commercial Banks for analysis,and failed to be based on all bank samples.Secondly,there was not much discussion on the division of earnings management degree.This paper was divided according to the mean value of earnings management index,but whether it was appropriate remains to be studied.