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Essays on the Loan Loss Provisions in the Banking Industry
DC Field | Value | Language |
---|---|---|
dc.contributor.advisor | 황이석 | - |
dc.contributor.author | 김영준 | - |
dc.date.accessioned | 2017-07-13T07:25:39Z | - |
dc.date.available | 2017-07-13T07:25:39Z | - |
dc.date.issued | 2014-08 | - |
dc.identifier.other | 000000021950 | - |
dc.identifier.uri | https://hdl.handle.net/10371/119359 | - |
dc.description | 학위논문 (박사)-- 서울대학교 대학원 : 경영학과 경영학전공, 2014. 8. 황이석. | - |
dc.description.abstract | This dissertation consists of three related but independent essays on the accounting for loan loss provisions (LLP) in the banking industry. While LLP is the largest accrual item on banks balance sheets, little is known about accounting for LLP. The first and the second essays investigate how the equity market prices LLP of US banks in the post-Basel period. The third essay examines how International Financing Reporting Standards (IFRS) affect loan loss provisioning of European banks, and its economic consequences. Below, I briefly elaborate on the three essays.
The first essay examines the value relevance of LLP. Prior studies find that banks' discretionary LLP (DLLP) are perceived positively by the market and attribute this to greater LLP signaling to investors the soundness of the bank. However, these studies are based on data from the pre-Basel era when LLP increased Tier 1 capital and thus had positive implications. I focus on the post-Basel period in which LLP does not affect Tier 1 capital and apply a better specified model to test for the value relevance of loan loss provisions. I find that DLLP is not value relevant in the post-Basel period. This result is consistent throughout the recent financial crisis, which is contrary to Ryans (2011) conjecture that DLLP may be valued positively during economic downturn. In addition, LLP and non-discretionary LLP (NLLP) are perceived negatively by the market. I also show that findings in the long-window value relevance test still hold in the short-window market reaction test. Overall, in the post-Basel period, DLLP provides no value relevant information whereas NLLP conveys value relevant information incremental to earnings. The second essay documents evidence on the mispricing of banks LLP in the equity market. First, I find that equity investors do not correctly price information in LLP: the level of LLP (change in LLP) is strongly (weakly) negatively related to one-year ahead future returns. When LLP is decomposed into non-discretionary LLP (NLLP) and discretionary accruals (DLLP), the level of and change in NLLP appears to be the main driver of return predictability. Second, I show that analysts do not fully impound information in LLP into their one year-ahead earnings forecasts: the level of and change in LLP are negatively related to analyst forecast optimism. Decomposition of LLP suggests that such bias is mainly due to NLLP. In sum, my findings suggest that equity market participants do not fully appreciate the loan-related risk information in LLP. The third essay examines the effect of IFRS on LLP of European banks and their loan origination pro-cyclicality. Using 1,545 bank-year observations in 14 European countries during 1996 to 2009, I find that, contrary to prior studies, there is weak evidence that banks reduce earnings smoothing via LLP in the post-IFRS period. However, there is evidence that banks increase LLP timeliness in the post-IFRS period. In particular, the decrease in earnings smoothing is pronounced for low-capitalized banks, whereas the increase in LLP timeliness is more pronounced for high-capitalized banks. My finding raises the possibility that the prior studies are subject to misspecification by omitting LLP timeliness. Next, I find that IFRS adoption does not on average exacerbate the pro-cyclical relationship between LLP and loan growth with the exception of small banks. These findings are robust to various settings. My evidence suggests that loan loss provisioning under IFRS does not threaten the stability of the financial system. | - |
dc.description.tableofcontents | ABSTRACT i
Essay 1 The Value Relevance of Loan Loss Provisions 1 I. Introduction 2 II. Literature review and hypotheses development 6 III. Sample selection and research design 11 III.1 Sample 11 III.2 Research Design 12 IV. Empirical Results 17 IV.1 Value relevance regression 17 IV.2 The effect of the recent financial crisis on pricing DLLP 23 V. Conclusion 27 Appendix 30 References 32 Essay 2 The Mispricing of Loan Loss Provisions 57 I. Introduction 58 II. Literature review and hypothesis development 62 III. Sample selection and research design 68 III.1 Sample 68 III.2 Research Design 69 IV. Empirical results 75 IV.1 Stock return test 75 IV.2 Analyst forecast error tests 79 V. Conclusion 82 References 85 Essay 3 The Effect of IFRS on Loan Loss Provision and Loan Origination Pro-cyclicality: Evidence from European Banks 106 I. Introduction 107 II. Related literature and hypotheses development 111 II.1 Loan loss provisioning in Europe 111 II.2 Related Literature 112 II.3 Hypotheses development 116 III. Empirical model 119 III.1 Loan loss provisioning model 119 III.2 Loan origination pro-cyclicality model 121 IV. Sample and descriptive statistics 122 IV.1 Sample selection 122 IV.2 Descriptive statistics 123 V. Empirical results 126 V.1 The impact of IFRS on loan loss provisioning 127 V.2 The impact of IFRS on loan origination pro-cyclicality 134 V.3 Robustness test 136 VI. Conclusion 141 References 143 Appendix A 146 국문초록 163 | - |
dc.format | application/pdf | - |
dc.format.extent | 1078037 bytes | - |
dc.format.medium | application/pdf | - |
dc.language.iso | en | - |
dc.publisher | 서울대학교 대학원 | - |
dc.subject | Analysts’ forecasts | - |
dc.subject | Loan loss provision | - |
dc.subject | IFRS | - |
dc.subject | Market reaction | - |
dc.subject | Mispricing | - |
dc.subject | Pro-cyclicality | - |
dc.subject | Signaling | - |
dc.subject | Value relevance | - |
dc.subject.ddc | 658 | - |
dc.title | Essays on the Loan Loss Provisions in the Banking Industry | - |
dc.type | Thesis | - |
dc.description.degree | Doctor | - |
dc.citation.pages | x,167 | - |
dc.contributor.affiliation | 경영대학 경영학과 | - |
dc.date.awarded | 2014-08 | - |
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