This study aims at assessing whether a significant within-year seasonality exists in the loan loss provisioning behavior of European listed banks observed in the period from 2004 to 2013. Since the accuracy of auditin...This study aims at assessing whether a significant within-year seasonality exists in the loan loss provisioning behavior of European listed banks observed in the period from 2004 to 2013. Since the accuracy of auditing processes and the level of disclosure requirements in financial reports differ among quarters, during the year, banks may have a leeway to underestimate and postpone the complete provisioning of loan losses in the less regulated and less audited quarters. We hypothesize that those differences are relevant factors which determine non-lower or significantly higher average levels of loan loss provisions in the half-yearly and especially in the annual financial reports than in the interim management statements disclosed in the first and the third quarters of the year. We also investigate the impact of the recent financial crisis and develop a special analysis for the ltalian banks＇ case. The empirical results support our hypotheses, suggesting that, in some cases, a convergence among quarterly levels of auditing processes and disclosure requirements may be needed. Our work contributes to the existing literature by providing additional evidences and considerations on the within-year seasonality in the loan loss provisioning behavior of European listed banks observed in the last decade.展开更多
The purpose of this paper is to come up with factors in loan loss provisioning practices on commercial banks that reflect on collectability of defaulted loans. The need for this research is due to failures in the loan...The purpose of this paper is to come up with factors in loan loss provisioning practices on commercial banks that reflect on collectability of defaulted loans. The need for this research is due to failures in the loan loss provisioning practices which resulted in loan loss provisions （LLP） not reflecting on collectability of the defaulted loans. As a consequence, the banks do not capture their loss expectations and do not continuously reassess their loss expectations as the conditions affecting their borrowers may change. Henceforth, in their financial reporting, the banks do not represent relevantly and faithfully their true underlying credit risks conditions. When the banks do not represent relevantly and faithfully their true underlying risk conditions, they contradict the objectives of useful financial reporting. The results showed that among explanatory variables, bad debt recoveries as a factor in loan loss provisioning practices that reflect on collectability of defaulted loans was rejected. Bad debt recoveries was a biased variable and inconsistent estimator. In context of perceived credit risks as the basis to make credit judgments, an estimate of bad debt recoveries had not fulfilled the criteria. On the other hand, non-performing loans （NPL） as a factor in loan loss provisioning practices was not rejected.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
文摘This study aims at assessing whether a significant within-year seasonality exists in the loan loss provisioning behavior of European listed banks observed in the period from 2004 to 2013. Since the accuracy of auditing processes and the level of disclosure requirements in financial reports differ among quarters, during the year, banks may have a leeway to underestimate and postpone the complete provisioning of loan losses in the less regulated and less audited quarters. We hypothesize that those differences are relevant factors which determine non-lower or significantly higher average levels of loan loss provisions in the half-yearly and especially in the annual financial reports than in the interim management statements disclosed in the first and the third quarters of the year. We also investigate the impact of the recent financial crisis and develop a special analysis for the ltalian banks＇ case. The empirical results support our hypotheses, suggesting that, in some cases, a convergence among quarterly levels of auditing processes and disclosure requirements may be needed. Our work contributes to the existing literature by providing additional evidences and considerations on the within-year seasonality in the loan loss provisioning behavior of European listed banks observed in the last decade.
文摘The purpose of this paper is to come up with factors in loan loss provisioning practices on commercial banks that reflect on collectability of defaulted loans. The need for this research is due to failures in the loan loss provisioning practices which resulted in loan loss provisions （LLP） not reflecting on collectability of the defaulted loans. As a consequence, the banks do not capture their loss expectations and do not continuously reassess their loss expectations as the conditions affecting their borrowers may change. Henceforth, in their financial reporting, the banks do not represent relevantly and faithfully their true underlying credit risks conditions. When the banks do not represent relevantly and faithfully their true underlying risk conditions, they contradict the objectives of useful financial reporting. The results showed that among explanatory variables, bad debt recoveries as a factor in loan loss provisioning practices that reflect on collectability of defaulted loans was rejected. Bad debt recoveries was a biased variable and inconsistent estimator. In context of perceived credit risks as the basis to make credit judgments, an estimate of bad debt recoveries had not fulfilled the criteria. On the other hand, non-performing loans （NPL） as a factor in loan loss provisioning practices was not rejected.
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.
