Purpose

Good earnings quality (EQ) provides reasonable assurance as to the reliability of future cash-flow generation capability of the borrowing firms and thereby mitigates the credit risk of the banks. Against the backdrop of the stressed-assets problem in public-sector banks in India, adversely impacting the public finance system, this paper aims to explore the role of EQ of the borrowers in obtaining bank credit and the ways to mitigate the problem.

Design/methodology/approach

Using a sample of listed 3,486 non-financial and non-government firms, the authors apply Jones (1991) model to estimate their EQ. Then, the authors conduct Hausman’s (1970) test and find the existence of a two-way relation between bank finance and EQ. The authors adopt a two-stage least-square regression model to test the nature of the association between the two after controlling for firm and industry-level characteristics.

Findings

The empirical results suggest that there exists a two-way negative association between EQ and bank finance implying that the Indian firms tend to report abnormal accruals to enhance tangibility for enjoying higher credit limits and easier access to bank finance. Also, the poor EQ is associated with earnings volatility, adversely impacting the credit quality. The findings are consistent.

Practical implications

The study highlights the role of EQ in mitigating credit risk and addressing adverse selection problems in granting credit by practicing bankers.

Originality/value

The findings of the study enrich the literature on EQ, capital structure, agency theory and public finance in several ways and have significant ethical and policy implications in bank-finance-led economies.

中文翻译：

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公共部门银行主导融资和盈利质量：印度的证据

目的

良好的盈利质量（EQ）为借款公司未来现金流产生能力的可靠性提供了合理的保证，从而降低了银行的信用风险。在印度公共部门银行资产压力大的背景下，对公共财政体系产生不利影响，本文旨在探讨借款人情商在获得银行信贷中的作用以及缓解该问题的方法。

设计/方法/途径

使用 3,486 家上市非金融和非政府公司的样本，作者应用 Jones (1991) 模型来估计他们的 EQ。然后，作者进行了豪斯曼（1970）的检验，发现银行金融与情商之间存在双向关系。作者采用两阶段最小二乘回归模型，在控制了公司和行业层面的特征后，检验了两者之间关联的性质。

发现

实证结果表明，情商与银行融资之间存在双向负相关，这意味着印度公司倾向于报告异常应计利润，以提高享受更高信贷额度和更容易获得银行融资的有形性。此外，EQ 差与收益波动有关，对信用质量产生不利影响。研究结果是一致的。

实际影响

该研究强调了情商在减轻信用风险和解决执业银行家授信过程中的逆向选择问题方面的作用。

原创性/价值

该研究的结果以多种方式丰富了关于情商、资本结构、代理理论和公共财政的文献，并对银行金融主导的经济体具有重要的伦理和政策影响。