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Loan loss provisions, accounting constraints, and bank ownership structure

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  • Balla, Eliana
  • Rose, Morgan J.

Abstract

We examine bank-level changes in the relationship between earnings and loan loss provisioning, a measure of earnings management, following the tightening of accounting constraints associated with the SEC's 1998 SunTrust Bank decision. By exploiting both temporal variation in the regulatory environment and cross-sectional variation in bank ownership structure, we find evidence that shortly after the SEC action, the relationship between earnings and provisions weakened for publicly-held banks but not for privately-held banks, consistent with reduced earnings management among publicly-held banks only. This difference does not persist over time, with evidence indicating a weakening of the relationship for both ownership types.

Suggested Citation

  • Balla, Eliana & Rose, Morgan J., 2015. "Loan loss provisions, accounting constraints, and bank ownership structure," Journal of Economics and Business, Elsevier, vol. 78(C), pages 92-117.
  • Handle: RePEc:eee:jebusi:v:78:y:2015:i:c:p:92-117
    DOI: 10.1016/j.jeconbus.2014.12.003
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    References listed on IDEAS

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    1. repec:eee:jaecon:v:63:y:2017:i:2:p:307-328 is not listed on IDEAS
    2. repec:bla:jfnres:v:40:y:2017:i:2:p:147-178 is not listed on IDEAS
    3. Ozili, Peterson K & Outa, Erick R, 2018. "Bank Earnings Smoothing During Mandatory IFRS adoption in Nigeria," MPRA Paper 89690, University Library of Munich, Germany.
    4. Ozili, Peterson K, 2017. "Bank Loan Loss Provisions Research: A Review," MPRA Paper 76495, University Library of Munich, Germany.
    5. Yang, Ling, 2016. "Is Bank Supervision Effective? Evidence from the Allowance for Loan and Lease Losses," MPRA Paper 75761, University Library of Munich, Germany.

    More about this item

    Keywords

    Loan loss provisioning; Earnings management; Ownership structure; Privately-held banks; Financial institutions; Banking regulation;

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • E65 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Studies of Particular Policy Episodes

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