Bad debt provisions and intra-industry information transfer in the banking sector

Carlos Diaz and Stuart McLeay

European Accounting Review, 1996, vol. 5, issue 4, 625-650

Abstract: This paper assesses information transfer in the capital market in the context of successive announcements of provisions for bad debts made by UK and US banks during the Latin American debt crisis. Using a system of simultaneous equations, it is shown that the unexpected increase in the share prices of US banks announcing an increase in loan loss reserves is also present in the returns of those banks, in both countries, which had not yet disclosed their provisions, but is not present in the share price behaviour of banks which had already announced their provisions.

Date: 1996
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DOI: 10.1080/09638189600000040

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