We examine the effects of the revised Basel II rules on bank managers' discretionary behavior, specifically income smoothing and loan loss provisioning. As the revised rules exert greater regulatory pressure on co...We examine the effects of the revised Basel II rules on bank managers' discretionary behavior, specifically income smoothing and loan loss provisioning. As the revised rules exert greater regulatory pressure on corporate than retail banking, we predict corporate bank managers to reduce risk-taking activities or increase income smoothing. Analysis of segmental reports reveals greater(less) income smoothing in the corporate banking segments of low-capital(high-capital) banks during the Basel II period, with their managers recognizing loan loss provisions in a less timely fashion. We find no such effects for retail banking. Although we document an initially negative market reaction to the regulatory announcements, that reaction weakens over time. Overall,the study highlights the unintended consequences of the banking rule changes.展开更多
This paper examines the impact of loan loss provisions(LLPs)on return predictability during 1994–2017.We find that on average,LLPs are negatively associated with one year ahead stock returns.This effect is particular...This paper examines the impact of loan loss provisions(LLPs)on return predictability during 1994–2017.We find that on average,LLPs are negatively associated with one year ahead stock returns.This effect is particularly significant during the global financial crisis but much weaker during the Basel Ⅱ and Ⅲ periods.Consistent with these findings,a long–short trading strategy based on LLPs generates positive abnormal returns during the Basel Ⅱ and Ⅲ periods but negative abnormal returns during the financial crisis.Cross-sectional tests show that this effect is more pronounced among banks with greater information asymmetry.Decomposition of LLPs suggests that these findings are driven mainly by nondiscretionary LLPs.Overall,our results suggest that the relationship between LLPs and future stock returns is not linear but contingent on bank regulations and macroeconomic conditions.展开更多
基金the School of Accountancy Research Center at Singapore Management University for financial support
文摘We examine the effects of the revised Basel II rules on bank managers' discretionary behavior, specifically income smoothing and loan loss provisioning. As the revised rules exert greater regulatory pressure on corporate than retail banking, we predict corporate bank managers to reduce risk-taking activities or increase income smoothing. Analysis of segmental reports reveals greater(less) income smoothing in the corporate banking segments of low-capital(high-capital) banks during the Basel II period, with their managers recognizing loan loss provisions in a less timely fashion. We find no such effects for retail banking. Although we document an initially negative market reaction to the regulatory announcements, that reaction weakens over time. Overall,the study highlights the unintended consequences of the banking rule changes.
文摘This paper examines the impact of loan loss provisions(LLPs)on return predictability during 1994–2017.We find that on average,LLPs are negatively associated with one year ahead stock returns.This effect is particularly significant during the global financial crisis but much weaker during the Basel Ⅱ and Ⅲ periods.Consistent with these findings,a long–short trading strategy based on LLPs generates positive abnormal returns during the Basel Ⅱ and Ⅲ periods but negative abnormal returns during the financial crisis.Cross-sectional tests show that this effect is more pronounced among banks with greater information asymmetry.Decomposition of LLPs suggests that these findings are driven mainly by nondiscretionary LLPs.Overall,our results suggest that the relationship between LLPs and future stock returns is not linear but contingent on bank regulations and macroeconomic conditions.
