Bank loan loss provisions: a reexamination of capital management, earnings management and signaling effects

This paper exploits the 1990 change in capital adequacy regulations to construct more powerful tests of capital and earnings management effects on bank loan loss provisions. We find strong support for the hypothesis that loan loss provisions are used for capital management. We do not find evidence o...

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Bibliographic Details
Published inJournal of accounting & economics Vol. 28; no. 1; pp. 1 - 25
Main Authors Ahmed, Anwer S., Takeda, Carolyn, Thomas, Shawn
Format Journal Article
LanguageEnglish
Published Amsterdam Elsevier B.V 01.11.1999
Elsevier
Elsevier Sequoia S.A
SeriesJournal of Accounting and Economics
Subjects
Accruals
Bank loans
Capital
Capital market
Capital markets
Commercial banks
Discretionary accruals
Hypotheses
Loan loss provision
Loan losses
Market value
Regulation
Regulatory capital
Signaling
Signalling
Statistical analysis
Stock returns
Studies
United States > US
Signaling
Loan loss provision
Regulatory capital
C23
Capital markets
G14
M41
Discretionary accruals
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Summary:This paper exploits the 1990 change in capital adequacy regulations to construct more powerful tests of capital and earnings management effects on bank loan loss provisions. We find strong support for the hypothesis that loan loss provisions are used for capital management. We do not find evidence of earnings management via loan loss provisions. We also document the reasons for the conflicting results on these effects observed in prior studies. Additionally, we find that loan loss provisions are negatively related to both future earnings changes and contemporaneous stock returns contrary to the signaling results documented in prior work.
Bibliography:ObjectType-Article-2
SourceType-Scholarly Journals-1
ObjectType-Feature-1
content type line 23
ISSN:0165-4101
1879-1980
DOI:10.1016/S0165-4101(99)00017-8