LAUSR

In this study we examine two types of manipulation: earnings and capital management (or capital adequacy management) in banks, using an international sample of banks from four countries (USA, UK, Germany and France), which in couples belong in common financial systems (two common – law countries and two code – law countries). In specific, we examine the implications of two aspects of auditor reputation, auditor type and auditor industry specialization, for earnings management via the manipulation of the earnings benchmark. We prove that different aspects of auditor reputation per financial system restrict the motivation of managers for earnings manipulation. Furthermore, we examine the levels of the earnings and capital management in banks by separating our research period in the pre – Basle II regime and the post – Basle II regime. We prove that in the post – Basle II period the banks per financial system limit earnings and capital adequacy management. Moreover, we examine the effects of auditor reputation both in earnings and capital management by using the same model taking into account the financial crisis of 2008 with the results of this (expanded) research to be highly interesting for each financial system.