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Loan Loss Provisioning, Income Smoothing, Signaling, Capital Management and Procyclicality: Does IFRS Matter? Empirical Evidence from Nigeria.

Ozili, Peterson (2015) 'Loan Loss Provisioning, Income Smoothing, Signaling, Capital Management and Procyclicality: Does IFRS Matter? Empirical Evidence from Nigeria.' Mediterranean Journal of Social Sciences, 6 (2). pp. 224-232. ISSN 2039-9340

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Abstract

Prior research show that banks have various motivations for influencing loan loss provisions. This study examines these motivations and the behaviour of loan loss provision in relation to the business cycle. After controlling for the impact of Basel regulation on LLP, I find strong evidence for income smoothing, capital management and procyclical LLP behaviour during the voluntary, not mandatory, adoption of IFRS in Nigeria. I find evidence of signaling only after including interaction terms in the model. Additionally, I find that (i) banks increase loan loss provisioning after the implementation of Basel; (ii) banks have some incentive to signal via LLP in the post-IFRS period relative to the pre-IFRS period (iii) banks have joint motivations to manipulate LLP and may face trade-offs in the choice of managing regulatory capital or smoothing income in the post-IFRS period. Overall, I conclude that IFRS reinforces LLP motivations and procyclical patterns. The findings of this paper are relevant to current concerns of accounting standard setters and bank regulators on the current model of loan loss provisioning as well as the on-going debate on the mandatory implementation of IFRS in Nigeria.

Item Type: Article
Uncontrolled Keywords: Loan loss provision, Earnings Management, Smoothing, Signaling, Bank Capital, Procyclicality, IFRS
Subjects: H Social Sciences > H Social Sciences (General)
H Social Sciences > HG Finance
Divisions: Faculty of Social Sciences > Essex Business School
Depositing User: Kitakogelu Ozili
Date Deposited: 23 Mar 2015 20:14
Last Modified: 30 Apr 2015 10:23
URI: http://repository.essex.ac.uk/id/eprint/13299

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