Credit unions and earnings management to mitigate political scrutiny over tax-exempt status |
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| Institution: | 1. Dhaliwal-Reidy School of Accountancy, University of Arizona, 1130 E. Helen St., PO Box 210108, Tucson, AZ 85721, United States;2. LeBow College of Business, Drexel University, Philadelphia, PA 19104, United States;3. Neeley School of Business, Texas Christian University, Fort Worth, TX 76129, United States;1. Harbert College of Business, Auburn University, 345 Lowder Hall, Auburn, AL 36830, USA;2. College of Business, Colorado State University, Rockwell Hall Room 256, Fort Collins, CO 80523, USA;1. College of Business, North Dakota State University, 811 2nd Ave. N., Fargo, ND 58108-6050, USA;2. Dhillon School of Business, University of Lethbridge, 345 – 6 Ave S.E., Calgary, Alberta T2G 4V1, Canada;1. Mendoza College of Business, University of Notre Dame, Notre Dame, IN 46556, United States;2. Ohio University College of Business, Ohio University, Athens, OH 45701, United States;1. Lynn Pippenger School of Accountancy, Muma College of Business, University of South Florida, 4202 East Fowler Ave., BSN 3403, Tampa, FL 33620, United States;2. Department of Accounting and Finance, Paul College of Business and Economics, University of New Hampshire, 11 Garrison Ave., Durham, NH 03824, United States;1. Department of Accountancy and Information Systems, Villanova University, United States;2. School of Accounting, Florida International University, United States;1. Hershel Anderson Endowed Professor, Department of Accounting, G. Brint Ryan College of Business, University of North Texas, Denton, TX 76201, United States;2. Department of Accountancy and Business Law, Cameron School of Business, University of North Carolina Wilmington, Wilmington, NC 28403, United States |
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| Abstract: | In this paper, we examine whether credit unions manage earnings to mitigate political scrutiny. In particular, we study whether credit unions increased loan loss provisions to decrease earnings around a 2005 congressional hearing on the efficacy of credit unions’ tax-exempt status. On average, we find evidence consistent with credit unions managing earnings downward via the loan loss provision in the quarters leading up to and surrounding the congressional hearing. In addition, we find that credit unions with higher earnings before the loan loss provision engaged in more downward earnings management than credit unions with lower earnings before provision. Our findings contribute to the literature examining the use of downward earnings management to avoid political scrutiny and the banking literature. Likewise, our results inform the continued debate as to whether credit unions should be tax-exempt. |
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| Keywords: | Credit union Earnings management Loan loss provision Tax-exempt G21 M41 L38 |
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