Institutional Ownership and Income Smoothing by Japanese Banks through Loan Loss Provisions

Wikil Kwak (), Ho-Young Lee () and Vivek Mande ()
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Wikil Kwak: College of Business Administration, University of Nebraska at Omaha, USA
Ho-Young Lee: School of Business, Yonsei University, South Korea
Vivek Mande: College of Business and Economics, California State University, Fullerton, USA

Review of Pacific Basin Financial Markets and Policies (RPBFMP), 2009, vol. 12, issue 02, 219-243

Abstract: This paper examines the association between institutional ownership and income smoothing through bank loan loss provisions for a sample of Japanese banks during the period 1991–1999. We find that as the percentage of institutional ownership of banks increases, income smoothing via loan loss provisions increases. Additional tests show that there is a significant positive relationship between the extent of income smoothing and the percentage ownership of banks by domestic financial institutions and affiliated (keiretsu) institutions. Consistent with the idea that foreign institutional holders do not play an important role in the corporate governance of Japanese banks, we do not find a significant association between foreign institutional ownership and the extent of income smoothing. Our results imply that institutional owners may play a different role in monitoring income smoothing during the recessionary period in Japan from the normal economic periods studied in most prior studies.

Keywords: Institutional ownership; income smoothing; loan loss provisions; Japanese banks (search for similar items in EconPapers)
JEL-codes: G1 G2 G3 (search for similar items in EconPapers)
Date: 2009
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Citations: View citations in EconPapers (8)

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DOI: 10.1142/S0219091509001617

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