Moving toward the expected credit loss model under IFRS 9: capital transitional arrangement and bank systematic risk

Minyue Dong and Romain Oberson

Accounting and Business Research, 2022, vol. 52, issue 6, 641-679

Abstract: This paper examines banks’ option to adopt the capital transitional arrangement (CTA) set out by the Basel Committee on Banking Supervision, in response to the introduction of the International Financial Reporting Standard 9 (IFRS 9), which requires the use of an expected credit loss model instead of an incurred loss model to estimate the impairment of financial assets. Using a sample of publicly listed European banks from 2016 to 2019, we find that bank CTA adoption choice is associated with neutral factors captured by bank-specific fundamental characteristics, and potential opportunistic factors related to regulatory constraints implied by the application of IFRS 9. We further find that banks that adopted the CTA (CTA adopters) decrease their exposure to systematic risk during the transitional period. However, this relationship is only significant in countries with powerful banking authorities. In those with less powerful banking authorities, CTA adopters tend to exercise more aggressively their accounting discretion. Our study is the first to address banks’ voluntary choice to adopt the CTA policy under the mandatory application of IFRS 9.

Date: 2022
References: Add references at CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
http://hdl.handle.net/10.1080/00014788.2021.1952060 (text/html)
Access to full text is restricted to subscribers.

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:taf:acctbr:v:52:y:2022:i:6:p:641-679

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/RABR20

DOI: 10.1080/00014788.2021.1952060

Access Statistics for this article

Accounting and Business Research is currently edited by Vivien Beattie

More articles in Accounting and Business Research from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().