Loan loss provisions, accounting constraints, and bank ownership structure

Eliana Balla and Morgan Rose

Journal of Economics and Business, 2015, vol. 78, issue C, 92-117

Abstract: We examine bank-level changes in the relationship between earnings and loan loss provisioning, a measure of earnings management, following the tightening of accounting constraints associated with the SEC's 1998 SunTrust Bank decision. By exploiting both temporal variation in the regulatory environment and cross-sectional variation in bank ownership structure, we find evidence that shortly after the SEC action, the relationship between earnings and provisions weakened for publicly-held banks but not for privately-held banks, consistent with reduced earnings management among publicly-held banks only. This difference does not persist over time, with evidence indicating a weakening of the relationship for both ownership types.

Keywords: Loan loss provisioning; Earnings management; Ownership structure; Privately-held banks; Financial institutions; Banking regulation (search for similar items in EconPapers)
JEL-codes: E65 G21 G28 G32 (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (18)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jebusi:v:78:y:2015:i:c:p:92-117

DOI: 10.1016/j.jeconbus.2014.12.003

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