A Conceptual Model for the Reasons and Circumstance of Earnings Management in Iranian Banks

Earning is a critical predictor of the health of the bank. The managementof earningsby banks has always been a matter for the attention of banking supervisors, auditors, and standards setters since it can have a positive effect on the stability of financial system and have a negative effect on the transparency of financial reporting. Given the importance of earnings management among the accounting literature, and shortage of quantitative and qualitative research in thefield ofIranian banking industry, as well as the qualitative research in earnings management area, this research aims to explore the concepts of reasons and circumstance the earnings management phenomenon in this industry from the perspective of its players.

The methodology of this research is a grounded theory approach usingin-depthinterviews for data gathering. For this purpose, seventeen banking experts, including independent and internal auditors, senior executives, academics, and capital market analysts and observers were interviewed. The analysis of the interviews was done completely with Atlas.ti Data Analytical Software Analysis and, three-stage open, axial and selective coding was employed.

A conceptual model was developed based on the Straussand Corbin paradigm, derived from the analysis of contextual data and the extraction of 213 open codes and their abstraction into 38 subcategories and 21 main categories.

Our analyses show that "achieving target profit" is a core category, and the most important action strategy of bank’s earnings management is “to manipulate  the Loan Loss Provisions (LLP)” and ultimately bank earnings management consequences are "distortion of financial reporting” and "aristocracy money banks". Our conceptualmodel presentedisbased on the social structure and the interaction process of actors in the banking industry. The resultsofthisstudy can have a significant contribution to the improvement of banks' earnings management literature and its extension to other industries.