Discretionary Provisioning Practices among Western European Banks

Ozili, Peterson K (2017): Discretionary Provisioning Practices among Western European Banks. Published in:

Abstract

The purpose of this study is to investigate whether discretionary provisioning by Western European banks is driven by income smoothing or credit risk considerations. We 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, we observe that discretionary provisioning is significantly influenced by credit risk factors, mainly, non-performing loans and loan growth. Also, we find 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.

• Item Type: MPRA Paper
• Language: English
• Keywords: Banks, Earnings Management, European union, financial stability, on-performing loans, Managerial Discretion, Income smoothing, Bank regulation, Loan loss provisions, Western Europe, Procyclicality
• Subjects: E - Macroeconomics and Monetary Economics > E6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook > E66 - General Outlook and Conditions; G - Financial Economics > G2 - Financial Institutions and Services > G21 - Banks ; Depository Institutions ; Micro Finance Institutions ; Mortgages; G - Financial Economics > G2 - Financial Institutions and Services > G28 - Government Policy and Regulation; M - Business Administration and Business Economics ; Marketing ; Accounting ; Personnel Economics > M4 - Accounting and Auditing > M41 - Accounting; M - Business Administration and Business Economics ; Marketing ; Accounting ; Personnel Economics > M4 - Accounting and Auditing > M42 - Auditing

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