Asymmetric loan loss provision models

Sudipta Basu, Justin Vitanza and Wei Wang

Journal of Accounting and Economics, 2020, vol. 70, issue 2

Abstract: Large net loan charge-offs are frequently associated with large decreases in nonperforming loans and large increases in loan loss provisions, inducing a V-shaped relation between loan loss provisions and nonperforming loan changes. Failure to model the asymmetry attributable to net loan charge-offs can change inferences about the presence of earnings management and the effects of delayed loan loss recognition in prior papers that assumed linearity. Future researchers should either include net loan charge-offs in linear models of loan loss provisions or explicitly model the asymmetry induced by omitting net loan charge-offs.

Keywords: Loan collectability; Loan charge-offs; Misspecification; Delayed loan loss recognition; Conditional conservatism (search for similar items in EconPapers)
JEL-codes: G21 G28 M41 M48 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0165410120300616
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:jaecon:v:70:y:2020:i:2:s0165410120300616

DOI: 10.1016/j.jacceco.2020.101359

Access Statistics for this article

Journal of Accounting and Economics is currently edited by J. L. Zimmerman, S. P. Kothari, T. Z. Lys and R. L. Watts

More articles in Journal of Accounting and Economics from Elsevier
Bibliographic data for series maintained by Catherine Liu ().