Banks’ Income Smoothing in the Basel Period: Evidence from European Union

Konstantinos Vasilakopoulos (), Christos Tzovas () and Apostolos Ballas
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Konstantinos Vasilakopoulos: Athens University of Economics and Business
Christos Tzovas: Athens University of Economics and Business

A chapter in Economic and Financial Challenges for Eastern Europe, 2019, pp 47-66 from Springer

Abstract: Abstract This paper investigates whether European banks smooth income and regulatory capital ratios through loan loss provisions in the Basel period. Using a sample of 1064 bank-year observations from 26 European Union countries, we find that banks use loan loss provisions in order to smooth income after the adoption of IFRS and the Basel regulatory framework. However, our results do not support the regulatory capital management hypothesis. In addition, we find that the risk level and direct market discipline affect bank managers’ accounting discretion. On the other hand, we do not find evidence to support the hypothesis that the legal environment plays a substantial role in banks’ accounting policy decisions.

Keywords: Banks; Provisions; IFRS; Regulation; Capital (search for similar items in EconPapers)
Date: 2019
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Persistent link: https://EconPapers.repec.org/RePEc:spr:prbchp:978-3-030-12169-3_4

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DOI: 10.1007/978-3-030-12169-3_4

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