Determinants of bank income smoothing using loan loss provisions in the United Kingdom

Peterson Ozili

Journal of Economic and Administrative Sciences, 2022, vol. 40, issue 3, 641-657

Abstract: Purpose - This paper examines the determinants of bank income smoothing using loan loss provisions in the United Kingdom or Great Britain from 1999 to 2017. Design/methodology/approach - The study used ordinary least square (OLS) regression and applying the HAC robust standard error correction test. Findings - The findings showed that UK banks use loan loss provision for income smoothing purposes. Income smoothing is greater in times of high economic policy uncertainty. The extent of bank income smoothing is reduced by foreign bank presence, UK GAAP adoption, IFRS9 adoption, and high levels of voice and accountability. Also, there is reduced income smoothing using loan loss provisions during a financial crisis and in periods of economic prosperity. Research limitations/implications - The implication is that economic conditions, institutional governance and accounting disclosure rules can influence the extent of bank income smoothing in the United Kingdom. The findings of the study contribute to several studies that explore the determinants of bank income smoothing. Originality/value - No study has extensively examined the determinants of bank income smoothing in Great Britain or the United Kingdom. The present study fills this gap in the literature.

Keywords: Earnings management; United Kingdom; Loan loss provisions; Income smoothing; Economic policy uncertainty; Great Britain; Accounting disclosure; Financial crisis; G21; G28; M10; M14 (search for similar items in EconPapers)
Date: 2022
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Working Paper: Determinants of bank income smoothing using loan loss provisions in the United Kingdom (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:eme:jeaspp:jeas-09-2021-0192

DOI: 10.1108/JEAS-09-2021-0192

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