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Hands in the cookie jar: Exploiting loan loss provisions under bank financial distress

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  • El Diri, Malek
  • King, Timothy
  • Spokeviciute, Laima
  • Williams, Jonathan

Abstract

We investigate earnings management (EM) behaviour at failed banks by examining the intensity and direction of EM around FDIC-insured commercial bank failures. Our empirical analysis indicates that failing banks engage in EM to a significantly greater extent than non-failing banks. Our results show that failing banks’ discretion over loan loss provisions ranges from aggressive (upwards EM) to conservative (downwards EM).

Suggested Citation

  • El Diri, Malek & King, Timothy & Spokeviciute, Laima & Williams, Jonathan, 2021. "Hands in the cookie jar: Exploiting loan loss provisions under bank financial distress," Economics Letters, Elsevier, vol. 209(C).
    • Handle: RePEc:eee:ecolet:v:209:y:2021:i:c:s016517652100375x
    DOI: 10.1016/j.econlet.2021.110098
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    References listed on IDEAS

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    Cited by:

    1. Citterio, Alberto & King, Timothy, 2023. "The role of Environmental, Social, and Governance (ESG) in predicting bank financial distress," Finance Research Letters, Elsevier, vol. 51(C).

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    More about this item

    Keywords

    Earnings management; Bank failures; Banks;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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