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Bank loan loss provisions, risk-taking and bank intangibles

Peterson K Ozili

MPRA Paper from University Library of Munich, Germany

Abstract: This article investigates the relationship between discretionary loan loss provisions and bank intangibles among African banks. Prior studies have focused on how intangible assets affect firms’ profitability and valuation decisions with almost no focus on the role of loan loss provisions. We investigate whether banks increase (decrease) loan loss provisions in response to risks associated with investment in intangible assets. We find that discretionary loan loss provisions are inversely associated with bank intangible assets and change in intangible assets, but the inverse association is weakened in environments with strong investor protection. We observe that income smoothing is reduced among banks that have large intangible asset investment. Moreover, income smoothing is pronounced among banks that have few intangible asset investments but this behaviour is reduced for banks in environments with strong minority shareholders right protection.

Keywords: banks; income smoothing; financial institutions; financial reporting; intangible assets; loan loss provisions; signalling; bank valuation; risk; Africa, (search for similar items in EconPapers)
JEL-codes: G21 G28 M2 M41 M42 M48 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-acc and nep-ban
Date: 2019-01-01
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https://mpra.ub.uni-muenchen.de/90273/1/MPRA_paper_90273.pdf original version (application/pdf)
https://mpra.ub.uni-muenchen.de/92212/1/MPRA_paper_90273.pdf revised version (application/pdf)
https://mpra.ub.uni-muenchen.de/90632/1/MPRA_paper_90632.pdf revised version (application/pdf)

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