Cross-country determinants of bank income smoothing by managing loan loss provisions

By A. Díaz, F. González. 2008

615 citations recorded by the source corpus.

This paper studies the determinants of income smoothing by management of loan-loss provisions in banks around the world. Using a panel database of 3221 bank-year observations from 40 countries and controlling for unobservable bank effects and for the endogeneity of explanatory variables, we find that bank income smoothing depends on investor protection, disclosure, regulation and supervision, financial structure, and financial development. Results suggest there is less bank income smoothing not only with the strength of investor protection, but also with the extent of accounting disclosure, restrictions on bank activities, and official and private supervision, while there is more income smoothing with market orientation and development of a country's financial system.

Subfields: Economics and Econometrics, Finance

View Paper: https://www.semanticscholar.org/paper/bc25c52a85d09f3639b0c1fca881a7d64b7576f0

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Citations in the corpus

Bank Loan Loss Provisions Research: A Review (2017, background): “…rights protection (reflecting investor protection), religiosity, legal systems, banking supervision, inflation, accounting disclosure regulation, monetary policy rate, political economy (see, Fonseca and Gonzalez, 2008; Floro, 2010; Bushman & Williams, 2012; Pool, De Haan, & Jacobs, 2015).”
Auditor Reputation and Earnings Management: International Evidence from the Banking Industry (2010, background): “And, consistent with Fonseca and Gonzalez (2008), OFFICIAL and MONITOR are negatively related to income-increasing ALLP.”
Effects of national culture on earnings quality of banks (2011, positive): “Higher risk-taking will lead to more volatile earnings, and induce managers to engage in a higher level of income smoothing (Fonseca & Gonzalez, 2008).”
Earnings and capital management and signaling: the use of loan-loss provisions by European banks (2015, methodology): “Following Fonseca and Gonzàlez (2008), in this paragraph we aim at detecting the impact of some other cross-country determinants on income smoothing practice at our sample banks.”
The Impact of Non-performing Loans on Bank Lending Behavior: Evidence from the Italian Banking Sector (2015, methodology): “Fonseca and Gonzalez (2008) focus on a similar aspect: the determinants of income smoothing by management of loan-loss provisions in banks around the world.”