 The effects of policy uncertainty on bank loan loss provisionsDung Tran and Reza Houston Economic Modelling, 2021, vol. 102, issue C Abstract: Uncertainty around fiscal policy has the potential to alter the lending behavior, investment, and employment of bank holding companies, all of which affect a bank's bottom line. Management forecasts of loan losses exhibit greater dispersion during these periods. However, this uncertainty provides management greater flexibility in estimating loan loss provisions to achieve firm objectives. Using a sample of 2483 U.S. bank holding companies, we demonstrate that the positive relationship between economic policy uncertainty and discretionary loan loss provisions is contingent on BHC characteristics and stakeholder oversight. The presence of institutional investors, increased analyst following, and dividend issuance attenuates the positive relationship between policy uncertainty and discretionary loan loss provisions. We also find that increased regulatory scrutiny weakens this relationship. Our findings indicate policy uncertainty provides cover to managements' inaccurate adjustments of loan loss provisions, but management is less willing to make such adjustments when internal and external stakeholders are informed. Keywords: Earnings management; Economic policy uncertainty; Banking; Bank holding companies (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:102:y:2021:i:c:s0264999321001644 DOI: 10.1016/j.econmod.2021.105575 Access Statistics for this article Economic Modelling is currently edited by S. Hall and P. Pauly More articles in Economic Modelling from Elsevier |
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