Signaling through Accounting Accruals vs. Financial Policy: Evidence from Bank Loan Loss Provisions and Dividend Changes
This study examines substitution or complementarity relationships between discretionary loan loss provisions (LLP) and dividend signals. The statistical tests and results presented in this study indicate that bank managers may signal simultaneously with an accounting policy (i.e., discretionary LLP) and a financial policy (i.e., dividend change). This finding primarily points out the possibility that a bank manager with an incentive to mitigate asymmetric information can select multiple signals to maximize signaling effects. Thus, LLP signaling is a complementary (rather than a substitute) signaling device of dividend signaling.
Volume (Year): 12 (2009)
Issue (Month): 03 ()
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