Loan loss provisioning and economic slowdowns: too much, too late?

Laeven, Luc; Majnoni, Giovanni

doi:10.1016/s1042-9573(03)00016-0

Cited by 649 publications

(661 citation statements)

References 18 publications

Supporting

Mentioning

578

Contrasting

Unclassified

Order By: Relevance

“…The amount of ABD was considered a control variable in existing studies (Albertazzi & Gambacorta, 2009;Salas & Saurina, 2002;Laeven & Majnoni, 2003), but in the present study changes in ABD did not affect changes in loan to SMEs. Table 10 and Table 11 show that the estimated coefficients (ß 5 ) had no statistical significance.…”

Section: Abdmentioning

confidence: 71%

Are bank loans to SMEs procyclical? Evidence from an analysis of the lending behavior of Korean banks

Seo

2013

SAJBM

View full text Add to dashboard Cite

This paper investigates the procyclicality of bank loans to Small and Medium Enterprises (SMEs) and to Large Enterprises (LEs) using aggregated and cross-sectional data from major private, foreign, and state-owned banks in Korea in the period from 1999 to 2008. Based on previous studies, it is hypothesized that compared to LEs, banks loans to SMEs may be more vulnerable to external economic shock. Berger and Udell (1994) suggested that bank loans to SMEs are comparatively risky due to their relatively low collateral and heavy dependence on banks for raising funds. In this study, empirical tests are verified by applying the rolling vector error correction Model (VECM), panel generalized least squares model (GLS), and the Clustering Fixed Effect Model. Findings include robust support for the procyclicality of bank loan to SMEs, but not for LEs. The review of short-term dynamics among first differential variables such as loans and GDP provides evidence to support a related hypotheses: the profit-oriented motivation of commercial banks in enhancing relationships with SMEs, the characteristics of governance structure in three types of banks (private, state-owned, and foreign owned banks), and the large-bank barriers assumption.

show abstract

Section: Abdmentioning

confidence: 71%

Are bank loans to SMEs procyclical? Evidence from an analysis of the lending behavior of Korean banks

Seo

2013

SAJBM

View full text Add to dashboard Cite

show abstract

“…Our paper contributes to this literature by showing strong evidence of nonlinear patterns between the main accrual in the banking industry and earnings. To the best of our knowledge, the general existence of such patterns has not been discussed before, although Laeven and Majnoni (2006), Bouvatier and Leepetit (2008) and Balboa, López-Espinosa and Rubia (2010) report evidence of asymmetric responses around zero earnings. Our paper can also be related to different studies concerned with the effects of econometric misspecification in the analysis on accrual-related models.…”

Section: Introductionmentioning

confidence: 94%

“…The main conclusions are sensitive to the choice of the sample and the specific econometric technique involved. For instance, Brady and Sinkey (1988), Ma (1988), Greenawalt and Sinkey (1988), Collins, Shackelford and Wahlen (1995), Bhat (1996), Kanagaretnam, Lobo and Matheu (2003), Bikker and Metzemakers (2005) and Laeven and Majnoni (2006), among others find evidence supporting this form of earnings management, while Scheiner (1981), Wetmore and Brick (1994), Beatty, Chamberlain and Magliolo (1995), Ahmed, Takeda and Thomas (1999) and Bouvatier and Lepetit (2008) do not.…”

Section: Introductionmentioning

confidence: 99%

See 1 more Smart Citation

Nonlinear dynamics in discretionary accruals: An analysis of bank loan-loss provisions

Balboa

López-Espinosa

Rubia

2013

Journal of Banking & Finance

View full text Add to dashboard Cite

Several studies have characterized the relation between discretionary accruals and earnings before-taxes to test for the existence of earnings smoothing behaviors. In this paper, we argue that the characteristic response of accruals to earnings is not linear, as the literature has shown. Instead, it is likely to be driven by non-linear patterns since both the incentives to manipulate earnings and the practical way to do so depend, in part, on the relative size of earnings. Using a sample of 9,442 US banks in the period 1999-2008, this paper shows that bank managers tend to use provisions as a smoothing devise when earnings are substantial ("cookie-jar" strategies), engage in earningsdecreasing strategies when losses are relatively large ("big-bath" accounting) and, most of the time, use provisions as an earnings-increasing tool. Hence, it is shown that nonlinear specifications are more informative with regard to the different strategies employed to manipulate earnings. Abstract Several studies have characterized the relation between discretionary accruals and earnings before-taxes to test for the existence of earnings smoothing behaviors. In this paper, we argue that the characteristic response of accruals to earnings is not linear, as the literature has shown. Instead, it is likely to be driven by non-linear patterns since both the incentives to manipulate earnings and the practical way to do so depend, in part, on the relative size of earnings. Using a sample of 9,442 US banks in the period 1999-2008, this paper shows that bank managers tend to use provisions as a smoothing devise when earnings are substantial ("cookie-jar" strategies), engage in earningsdecreasing strategies when losses are relatively large ("big-bath" accounting) and, most of the time, use provisions as an earnings-increasing tool. Hence, it is shown that nonlinear specifications are more informative with regard to the different strategies employed to manipulate earnings. Marina Balboa

show abstract

“…Bikker and Hu 2002, Laeven and Majnoni 2003, Bouvatier and Lepetit 2008. Following this strand of papers, we uncover the importance of impaired loans in driving down banks' profitability.…”

Section: Introductionmentioning

confidence: 94%

What happened to profitability? Shocks, challenges and perspectives for euro area banks

Cheng¹,

Mevis²

2018

The European Journal of Finance

View full text Add to dashboard Cite

This paper uses a newly constructed dataset including financial statement information of 311 banks in the euro area to analyse the evolution of bank profitability before and after the Global Financial Crisis and the subsequent European crisis. We first document the general trends in the changes in banks' profitability with a particular focus on country and bank heterogeneity. We find that the profitability of banks in different parts of the monetary union was hit by multiple shocks of different nature. Based on this, we then propose an econometric analysis of the drivers behind the evolution of bank profitability by discriminating factors relative to macroeconomic conditions, bank funding and portfolio structures, and new banking regulations in the euro area.JEL Classification: G21, G28, G33, L25 Keywords: bank, profit, return on asset, bank regulation, bank business model * We thank members of the Economics, Strategy and Banking department at the European Stability Mechanism for very fruitful discussions. Special thanks go to Antonello D'Agostino, Aitor Erce and Paolo Fioretti. We also thank the scientific committee of 2015 IFABS conference.

show abstract

Loan loss provisioning and economic slowdowns: too much, too late?

Abstract: Most banks around the world delay provisioning for bad Economic Slowdowns loans until it is too latewhen cyclical downturns Too Much, Too Late? have already set in. The size and timing of loan loss provisions tend to improve

Cited by 649 publications

References 18 publications

Are bank loans to SMEs procyclical? Evidence from an analysis of the lending behavior of Korean banks

Are bank loans to SMEs procyclical? Evidence from an analysis of the lending behavior of Korean banks

Nonlinear dynamics in discretionary accruals: An analysis of bank loan-loss provisions

What happened to profitability? Shocks, challenges and perspectives for euro area banks

Contact Info

Product

Resources

About