Top Executive Turnover and Loan Loss Provisions: Evidence from Japanese Regional Banks

Masahiro Enomoto and Yusuke Fukaya
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Yusuke Fukaya: College of Business Management, J. F. Oberlin University, JAPAN

No DP2023-06, Discussion Paper Series from Research Institute for Economics & Business Administration, Kobe University

Abstract: This study examines loan loss provisions following top executive turnovers in Japanese banks. The study differentiates between voluntary and forced turnover and inside and outside succession. The results show that incoming top executives, following forced turnover or outside succession, tend to reduce loan loss provisions in the second year of their tenure. This suggests that incoming top executives attempt to create a positive impression of their abilities by increasing earnings in the second year. This evidence differs from previous research showing "big bath" accounting in the first year. Additionally, outgoing top executives recognize greater loan loss provisions in the final year before outside succession. This study further shows that incoming top executives attempt to increase earnings following succession through gains and losses from securities sales, commissions, and fees.

Pages: 46 pages
Date: 2023-03
New Economics Papers: this item is included in nep-ban
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