Manipulating loan loss provisions - Qualitative analysis with EMU bank data
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Keywords
Τραπεζικό σύστημα ; EMU banks ; Ζημιές απομειώσεως ; Ζώνη ευρώ ; Χειραγώγηση ισολογισμών ; Κίνηση μετοχής ; Μοντέλα παλινδρόμησης ; Loan loss provisions ; Signaling ; Income smoothing ; Share price movement ; Plain regression model analysis ; Income statement manipulationAbstract
Every year, banks report provisions for loan losses in their annual balance sheet. Existing literature provides evidence that those provisions are used to alter final statements, and therefore might include different types of information.
This paper covers the universe of financial institutions across the European Monetary Union and re-examines the connection between loan loss provisions and several theories. These include earnings smoothing, signaling effect, and capital management, as these have been analyzed in previous literature. This is achieved through a panel regression model analysis in R.
In addition to previous literature, this paper provides evidence that there is also a connection between loan loss provisions and share price movement, which, as far as the author is concerned, has not been researched yet. By hypothesizing that a rise in share price will result in a decline in provisions, a regression model was used across several different samples from the same pool. Results support previous literature and provide further evidence on existing theories. Although they are not conclusive, they provide evidence that requires further analysis. More specifically, there appears to be a negative correlation between loan loss provisions and price movement, meaning that when the share price gets higher, LLPs are lowered.
Postgraduate Studies Programme
Χρηματοοικονομική και Τραπεζική με κατεύθυνση στην Χρηματοοικονομική και Τραπεζική ΔιοικητικήDepartment
Σχολή Χρηματοοικονομικής και Στατιστικής. Τμήμα Χρηματοοικονομικής και Τραπεζικής ΔιοικητικήςNumber of pages
68Language
English
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Attribution-NonCommercial-NoDerivatives 4.0 Διεθνές
Attribution-NonCommercial-NoDerivatives 4.0 Διεθνές