Earnings management in Libyan commercial banks: perceptions of stakeholders

The issue of earnings management has continued to be problematicin the financial reporting context. It has proved to be an important topic thatconcerns a wide range of stakeholders, including regulators, investors andpreparers. The objective of this paper is to examine the perceptions of differentstakeholders with regard to the financial reporting quality of Libyancommercial banks (LCBs) by addressing the issue of earnings management.The paper adopts a qualitative approach in order to investigate the topic ofearnings management. It considers motives for, and techniques of, earningsmanagement as well as the role and potential role for accounting standards andimproved corporate governance in addressing the issue. The paper reports on28 semi-structured interviews with different stakeholders of LCBs. It is foundthat financial reporting quality is perceived to be impaired as a result ofearnings management. It also provides prima facie evidence of some fraudulentactivity in the management of earnings. IFRS/IAS as well as a sound corporategovernance system is perceived to have an important potential role inimproving financial reporting quality. Some confusion and ambiguity in theunderstanding of the term earnings management was also identified.