Research Repository

Discretionary provisioning practices among Western European banks

Ozili, Peterson K (2017) 'Discretionary provisioning practices among Western European banks.' Journal of Financial Economic Policy, 9 (1). pp. 109-118. ISSN 1757-6385

[img]
Preview
Text
Author Accepted Manuscript - available online.pdf - Accepted Version

Download (676kB) | Preview

Abstract

<jats:sec> <jats:title content-type="abstract-subheading">Purpose</jats:title> <jats:p>The purpose of the study is to investigate whether discretionary ‘loan loss provisioning’ by Western European banks is driven by income smoothing or credit risk considerations.</jats:p> </jats:sec> <jats:sec> <jats:title content-type="abstract-subheading">Design/methodology/approach</jats:title> <jats:p>To test the income smoothing hypothesis, the study uses ordinary least square regression to examine the relation between loan loss provisions and earnings before tax and loan loss provisions in the post-financial crisis period.</jats:p> </jats:sec> <jats:sec> <jats:title content-type="abstract-subheading">Findings</jats:title> <jats:p>The authors find evidence that discretionary provisioning by Western European banks is driven by income smoothing incentives in the post-financial crisis period, particularly, among listed banks. Also, it is observed that discretionary provisioning is significantly influenced by credit risk factors, mainly, non-performing loans and loan growth. Also, it is found that discretionary provisioning by Western European banks is procyclical with fluctuations in the economic cycle. Overall, the implication of the findings is that discretionary provisioning among Western European banks is driven by both income smoothing and credit risk considerations.</jats:p> </jats:sec> <jats:sec> <jats:title content-type="abstract-subheading">Originality/value</jats:title> <jats:p>This study focus on banks in Western Europe in contrast to prior European studies.</jats:p> </jats:sec>

Item Type: Article
Uncontrolled Keywords: Managerial Discretion, Bank regulation, Loan loss provisions, Western Europe, Europe, Income Smoothing, Non-performing loans,Procyclicality. Lending, Regulation, Supervision.
Subjects: H Social Sciences > HB Economic Theory
H Social Sciences > HG Finance
Divisions: Faculty of Social Sciences > Essex Business School
Faculty of Social Sciences > Essex Business School > Essex Finance Centre
SWORD Depositor: Elements
Depositing User: Elements
Date Deposited: 09 Mar 2017 16:57
Last Modified: 08 Jan 2022 00:33
URI: http://repository.essex.ac.uk/id/eprint/19299

Actions (login required)

View Item View Item