Processing forward-looking loan loss provisions: evidence from the adoption of the CECL model

Daniel Dejuan-Bitria
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Daniel Dejuan-Bitria: Banco de España

No 2617, Working Papers from Banco de España

Abstract: This paper examines the impact of the Current Expected Credit Loss (CECL) model on the efficiency with which equity investors process banks’ earnings announcements. A potential concern with CECL is that it increases the complexity of loan loss provisions. I examine whether this added complexity impairs investors’ ability to efficiently process earnings announcements. Using a difference-in-differences methodology, I find that CECL reduces investors’ processing efficiency during banks’ earnings announcements. The effect is stronger when provisions are driven by the origination of new loans. This finding is consistent with the idea that CECL introduces a timing mismatch between loss and revenue recognition—provisions for expected losses are recognized at loan origination while interest income accrues over the life of the loan—making it harder for investors to interpret the valuation implications of provisions. Collectively, my results show that equity investors face higher processing costs when interpreting banks’ earnings announcements under CECL.

Keywords: CECL model; earnings announcement; investor processing efficiency (search for similar items in EconPapers)
JEL-codes: G14 G2 M41 (search for similar items in EconPapers)
Pages: 63 pages
Date: 2026-06
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Persistent link: https://EconPapers.repec.org/RePEc:bde:wpaper:2617e

DOI: 10.53479/43426

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