Earnings and capital management and signaling: the use of loan-loss provisions by European banks

Domenico Curcio · Iftekhar Hasan

165 citations0/0 files storedEuropean Journal of Finance

No readable copy stored yet — this record is metadata only.

No open-access location is known for this record yet.

Literature note Cite in a project Citation map

Auditing, Earnings Management, Governance Banking stability, regulation, efficiency Corporate Finance and Governance

Abstract

This paper investigates the relationship between loan-loss provisions (LLPs) and earnings management in the context of the capital adequacy of Euro Area (EA) banks versus non-EA credit institutions. This paper also examines whether LLPs signal managements’ expectations concerning future bank profits to investors. Additionally, this paper traces the role of bank regulations and creditor protection systems in explaining income smoothing. Evidence drawn from the 1996 to 2006 period indicates that LLPs do reflect changes in the expected quality of a bank's loan portfolio for both groups of banks, and that earnings management is an important determinant of LLPs for EA intermediaries, whereas non-EA credit institutions use LLPs to signal private information to outsiders. The paper also finds that higher protection of creditors’ rights significantly reduces the incentives to smooth earnings for EA banks. During the recent financial crisis, EA bank managers are much more concerned with their credit portfolio quality and do not use LLPs for discretionary purposes, whereas LLPs at non-EA banks are used to smooth income more than for the purposes of managing capital ratios or conveying private information about future performance to the market.

Paper brief

Loading…

Cite this work

Citation unavailable for this work.

BibTeX RIS CSL-JSON

No public copy is stored for this record, so only the metadata is cited.

Citations in this library

Citation map →

Stored only when both papers are in the corpus — 165 citations exist upstream.

References

1998Law and Finance 1985Positive Accounting Theory 2003Earnings management and investor protection: an international comparison 2002Investor Protection and Corporate Valuation 2008International Accounting Standards and Accounting Quality 2003Bank regulation and supervision: what works best?2002Does deposit insurance increase banking system stability? An empirical investigation 1999Bank loan loss provisions: a reexamination of capital management, earnings management and signaling effects

Cited by

2020Loan Loss Provisioning of US Banks: Economic Policy Uncertainty and Discretionary Behavior 2018Income smoothing among European systemic and non-systemic banks 2019Prudential supervisors’ independence and income smoothing in European banks 2019Bank income smoothing, institutions and corruption 2018Macroprudential policy instruments and procyclicality of loan-loss provisions – Cross-country evidence 2018

Explore the map →

Papers that cite the same references — the relational fallback while embeddings are still backfilling.

Imported from OpenAlex (CC0) — nothing here is generated.