Quality Analysis of Earnings Reported by Banks in Dynamic and Less Dynamic Financial Markets by Applying IAS 39 for Measuring Financial Instruments-Case Study: Mozambique and Portugal

Abstract

The present study aimed to analyse the quality of the earnings reported by banks inserted in dynamic and less dynamic financial markets, associated with IAS 39 as measurement standard of financial instruments, from 2013 to 2017. The study consisted of the analysis discretionary accruals of banks operating in different markets, namely Mozambican and Portuguese. Discretionary accruals were estimated based on the modified Jones (1991) model. The study results indicate that there is evidence of discretionary behaviour in the reported earnings, and is high to the dynamic markets context. On account of the previous finding, the study has drawn the differences in the use of financial instruments. It was found out that Mozambican banks use few instruments; however, the difference is meaningless. A gross part of Financial Instruments Available-for-Sale and used by Mozambican banks are made up of treasure obligations, which may partly explain the reduced discretionary behaviour compared to Portuguese banks.