The Effectiveness of Strategies Used to Combat Earnings Management in Commercial Banks in Tanzania

Abstract

This study investigated earnings management in the Tanzanian context. The study specifically focused on the effectiveness of earnings management strategies in Commercial Banks in Tanzania. The research aimed to answer a key research question: How effective are the strategies used by commercial banks in Tanzania to combat earning management. Many studies on earnings management focus on listed and/or large firms, which leave out the Commercial Banks, especially in developing countries like Tanzania. The conceptual framework with two variables (organizational strategies and stakeholders' strategies) was developed from the literature review. The qualitative approach was considered the most appropriate for the study. Being informed by participants' position in the preparation and analysis of financial statements, fourteen participants, including two (2) Chief financial officers, two (2) Financial controllers, two (2) Performance managers, two (2) External auditors, and two (2) Internal auditors, two (2) Audit committee members and two (2) stakeholders were purposively selected to from the study sample. McIntosh and Morse (2015) suggested that open-ended semi-structured interviews were used for data collection. The findings of the study were analyzed using a thematic research approach. Following inductive thematic analysis, five effective strategies in combating earning management in commercial banks in Tanzania emerged. The findings of this study indicate that internal control, governance system, competence of the bank personnel, statutory audit, and Central Bank oversight are the effective strategies used to deal with earnings management. Participants disclosed that adopting these strategies could reduce the incidence of commercial banks' earnings management problems. In many respects, the present study adds knowledge to the existing body of knowledge. Based on the literature reviewed, this study stands as the first and only research to analyze the strategies used in an emerging market by commercial banks to deal with earnings management in Tanzania. This research relates to restricted earnings research performed in developed countries. The study results could be used, in particular, by commercial banks, organizations, and other stakeholders involved in ensuring the reliability of the financial statements issued. The reliability of the released financial statement would be strengthened by focusing on the strategies to deal with earnings management in commercial banks.