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Bank Income Smoothing, Ownership Concentration and the Regulatory Environment

  • Vincent Bouvatier


    (EconomiX - CNRS - UP10 - Université Paris 10, Paris Ouest Nanterre La Défense)

  • Laetitia Lepetit


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

  • Frank Strobel


    (university of birmingham - Department of Economics)

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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Paper provided by HAL in its series Post-Print with number hal-00916674.

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Date of creation: 2014
Date of revision:
Publication status: Published in Journal of Banking and Finance, Elsevier, 2014, 41, pp.253-270. <10.1016/j.jbankfin.2013.12.001>
Handle: RePEc:hal:journl:hal-00916674
DOI: 10.1016/j.jbankfin.2013.12.001
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