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Cross country linkages as determinants of procyclicality of loan loss provisions – empirical importance of SURE specification

Author

Listed:
  • Malgorzata A. Olszak

    () (Faculty of Management,University of Warsaw)

  • Mateusz Pipien

    () (Cracow University of Economics, Economic Institute, National Bank of Poland)

Abstract

Procyclicality in banking may result in financial instability and therefore be destructive to economic growth. The sensitivity of different banking balance sheet and income statement variables to the business cycle is diversified and may be prone to increasing integration of financial markets. In this paper we address the problem of the influence of financial integration on the transmission of economic shocks from one country to another and consequently on the sensitivity of loan loss provisions to the business cycle. We also aim to find out whether earnings management hypotheses are supported throughout the whole business cycle. Application of the SURE approach to 13 OECD countries in 1995-2009 shows that the procyclicality of LLP is statistically significant almost in thewhole sample of countries. Independent of the econometric specification, the earnings management hypotheses are hardly supported.

Suggested Citation

  • Malgorzata A. Olszak & Mateusz Pipien, 2013. "Cross country linkages as determinants of procyclicality of loan loss provisions – empirical importance of SURE specification," Faculty of Management Working Paper Series 22013, University of Warsaw, Faculty of Management.
  • Handle: RePEc:sgm:fmuwwp:22013
    as

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    File URL: http://www.wz.uw.edu.pl/portaleFiles/5630-Faculty%20of%20M/WP/WPS22013MOLSZAKPIPIEN.pdf
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    References listed on IDEAS

    as
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    Cited by:

    1. Łukasz Lenart & Mateusz Pipień, 2015. "Empirical Properties of the Credit and Equity Cycle within Almost Periodically Correlated Stochastic Processes - the Case of Poland, UK and USA," Central European Journal of Economic Modelling and Econometrics, CEJEME, vol. 7(3), pages 169-186, September.

    More about this item

    Keywords

    loan loss provisions; procyclicality; earnings management;

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • 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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