Earnings management, competition and cooperative banks' risk-taking: International evidence

This paper investigates the interrelationship between earnings management, competition and risk using the panel data of 615 cooperative banks in 16 countries during the 1994-2007 period. The results show that risk-earnings management and risk-competition are negatively related and the relationship is bidirectional. Also, competition-earnings management is positively related and the relationship is bidirectional. We argue that cooperative banks managers' manipulation of earnings will raise the probability of bank failure and higher market share of cooperative banks has a positive effect on their stability. Furthermore, cooperative bank managers will have less incentive to manipulate earnings if cooperative banks face less competition.