Loan Loss Provisioning, Income Smoothing, Signaling, Capital Management and Procyclicality: Does IFRS Matter? Empirical Evidence from Nigeria

Peterson Ozili

MPRA Paper from University Library of Munich, Germany

Abstract: Prior research show that banks have various motivations for influencing loan loss provisions. This study examines these motivations and the behaviour of loan loss provision in relation to the business cycle. After controlling for the impact of Basel regulation on LLP, I find strong evidence for income smoothing, capital management and procyclical LLP behaviour during the voluntary, not mandatory, adoption of IFRS in Nigeria. I find evidence of signaling only after including interaction terms in the model. Additionally, I find that (i) banks increase loan loss provisioning after the implementation of Basel; (ii) banks have some incentive to signal via LLP in the post-IFRS period relative to the pre-IFRS period (iii) banks have joint motivations to manipulate LLP and may face trade-offs in the choice of managing regulatory capital or smoothing income in the post-IFRS period. Overall, I conclude that IFRS reinforces LLP motivations and procyclical patterns. The findings of this paper are relevant to current concerns of accounting standard setters and bank regulators on the current model of loan loss provisioning as well as the on-going debate on the mandatory implementation of IFRS in Nigeria.

Keywords: Loan loss provision; Earnings Management; Smoothing; Signaling; Bank Capital; Procyclicality; Nigeria (search for similar items in EconPapers)
JEL-codes: G21 G23 O55 (search for similar items in EconPapers)
Date: 2015
New Economics Papers: this item is included in nep-acc and nep-cba
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (21)

Published in Mediterranean Journal of Social Sciences 2.6(2015): pp. 224-232

Downloads: (external link)
https://mpra.ub.uni-muenchen.de/68350/1/MPRA_paper_68350.pdf original version (application/pdf)

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:pra:mprapa:68350

Access Statistics for this paper

More papers in MPRA Paper from University Library of Munich, Germany Ludwigstraße 33, D-80539 Munich, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Joachim Winter ().