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Bank Income Smoothing, Ownership Concentration and the Regulatory Environment

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  • Vincent Bouvatier

    () (EconomiX - UPN - Université Paris Nanterre - CNRS - Centre National de la Recherche Scientifique)

  • Laetitia Lepetit

    () (LAPE - Laboratoire d'Analyse et de Prospective Economique - IR SHS UNILIM - Institut Sciences de l'Homme et de la Société - UNILIM - Université de Limoges)

  • Frank Strobel

    () (University of Birmingham [Birmingham])

Abstract

Abstract We empirically examine whether the way a bank might use loan loss provisions to smooth its income is in‡uenced by its ownership concentration and the regulatory environment. Using a panel of European commercial banks, we find evidence that banks with more concentrated ownership use discretionary loan loss provisions to smooth their income. This behavior is less pronounced in countries with stronger supervisory regimes or higher external audit quality. Banks with low levels of ownership concentration do not display such discretionary income smoothing behavior. This suggests the need to improve existing or implement new corporate governance mechanisms.

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  • Vincent Bouvatier & Laetitia Lepetit & Frank Strobel, 2014. "Bank Income Smoothing, Ownership Concentration and the Regulatory Environment," Post-Print hal-00916674, HAL.
  • Handle: RePEc:hal:journl:hal-00916674
    DOI: 10.1016/j.jbankfin.2013.12.001
    Note: View the original document on HAL open archive server: https://hal-unilim.archives-ouvertes.fr/hal-00916674
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    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

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