LESSON 2

1. Identify the sampling used in the journal. Describe the sampling technique used. Explain the
procedures used.

Sampling Used: 330 banks in the African countries:

Sampling Technique Used: Multi-stage Sampling, Probability Sampling

Procedures Used: In the study, the researchers used a combination of the four methods of sampling-
simple, stratified, systematic and cluster. Stratified Random Sampling is used because it involves dividing
the said population into homogeneous subgroups and then taking a simple random sample in each
subgroup by selecting n units out of N such that each sample has an equal chance of being selected,
which can also be concluded as using the probability sampling. Systematic Random sampling is also used
because the researcher followed steps in identifying the Distribution of the Annual Net Income, Banks
operating in Africa engage in earnings management and the Annual Loan Loss Allowance (LLP) of each
bank.

Furthermore, in identifying whether banks operating in Africa engage in earnings management, the
researchers group the countries on the basis of regional location of the banks or (Cluster Area) Sampling.
The groupings are northern, central and southern African countries. The countries that are included in
northern region of Africa are Algeria, Egypt, Morocco, Sudan and Tunisia. In the central African countries
are Benin, Burkina Faso, Cameroon, Cote d’voire, Ethiopia, Ghana, Kenya, Mali, Mauritania, Nigeria,
Rwanda, Senegal, Sierra Leone and Uganda. Lastly in Southern Africa are Angola, Botswana, Malawi,
Mauritius, Mozambique, Namibia, South Africa, Swaziland and Zimbabwe.

This categorization of countries is made by the World Bank. This allows the researchers to examine
whether regional differences exists as to how banks manage their earnings over time. The earnings are
scaled by each bank’s equity capital. The results of the histogram of banks earnings show a half-normal
distribution shape for all the three regions of Africa, earnings less than zero occur much less frequently
and occur only in central zones of the continent. These results mean that the incentive to manage
earnings varies among banks in Africa.

Thus, The most important principle in this sampling is that it is the combination of all the simple
methods that help the researchers address their sampling needs in the most efficient and effective
manner possible.

2. Look for another journal. Do the same with number 1.

Sampling Used: 84 private bank and 471 demutualizing thrift initial public offering (IPO) between 1992
and 2004.

Sampling Technique Used: Non-Probability Sampling-Purposive Sampling

Procedures Used: In the study, the researchers sampled with a purpose in mind. Using a sample
of depository IPOs that include both mutual and non-mutual firms, the researchers examine whether
firms manage earnings and capital levels around the IPO. The sample of depository IPOs is obtained
from SNL Data Source (provides business intelligence services, SNL offers the collection and
standardization of corporate, financial, mergers and acquisitions (M&A) data) and includes 84 private
bank and 471 demutualizing thrift IPOs between 1992 and 2004. The researchers report the mix of
mutual and non-mutual firms by year. For each firm in the sample, the researchers collect information
related to the IPO, firm characteristics and performance data, and selected financial reporting
information including loan loss provisions and loan loss reserves. The researchers require each firm to
have at least 4 years of financial data on ROA and loan loss provisions, including the two years prior to,
the year of, and the first complete fiscal year following the IPO.

Furthermore, in order to examine the influence of earnings management on the trends. The
researchers use a two-stage regression framework to isolate the discretionary components of loan loss
provisions and loan loss reserves.

Thus, this research has an objective to discuss the incentives associated with demutualization
and the possible role of earnings management, discuss the data and provide descriptive statistics
relating to the IPOs for their mutual and non-mutual banks and to present the results of their two-stage
multivariate analysis that examines earnings management around the IPO.