Profit smoothing of European banks under IFRS 9

Oľga Jakubíková

No 4.003, FFA Working Papers from Prague University of Economics and Business

Abstract: The aim of this paper is to examine whether banks engage in profit smoothing using loan loss provisions under the new provisioning rules according to IFRS 9. Due to relatively loose definitions of provisioning principles and use of macroeconomic predictions under IFRS 9, there is certain managerial discretion expected allowing banks to reduce the variability of profits over time using loan loss provisions. The hypothesis that banks use loan loss provisions to smooth their profits under IFRS 9 was tested with panel regression analysis on the panel of 27 EU member countries for period 1Q2015 - 2Q2021. The evidence of profit smoothing was not confirmed neither in IFRS 9, nor in IAS 39 period, therefore, the hypothesis was rejected on 1% significance level.

Keywords: IFRS 9; loan loss provisions; profit smoothing (search for similar items in EconPapers)
JEL-codes: G12 G21 G32 (search for similar items in EconPapers)
Pages: 17 pages
Date: 2022-01-26, Revised 2022-02-21
New Economics Papers: this item is included in nep-acc, nep-ban, nep-eec and nep-eff
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