Munich Personal RePEc Archive

Impact of IAS 39 reclassification on Income Smoothing by European Banks

Ozili, Peterson K (2019): Impact of IAS 39 reclassification on Income Smoothing by European Banks. Forthcoming in: Journal of Financial Reporting and Accounting

[img] PDF
MPRA_paper_92098.pdf

Download (665kB)
[img] PDF
MPRA_paper_92098.pdf

Download (665kB)

Abstract

We examine the impact of the reclassification of IAS 39 on income smoothing using loan loss provisions among European banks. We predict that the strict recognition and re-classification requirements of IAS 139 reduced banks' ability to smooth income using bank securities and derivatives, motivating them to rely more on loan loss provisions to smooth income. Our findings do not support the prediction for income smoothing through loan loss provisions. Also, there is no evidence for income smoothing in the pre- and post-IAS 39 reclassification period. The implication of the findings is that: (i) European banks did not use loan loss provisions to smooth income during the period examined, and rather rely on other accounting numbers to smooth income; (ii) the IASB’s strict disclosure regulation improved the reliability and informativeness of loan loss provision estimates among European banks during the period of analysis.

UB_LMU-Logo
MPRA is a RePEc service hosted by
the Munich University Library in Germany.