Abstract

http://ssrn.com/abstract=2022644
 


 



Conditional Accounting Conservatism and Bank Risk Taking


Manuel Illueca Muñoz


Universitat Jaume I

Lars Norden


Brazilian School of Public and Business Administration (EBAPE), Getulio Vargas Foundation (FGV)

Gregory F. Udell


Indiana University - Kelley School of Business - Department of Finance

February 1, 2016

AFA 2013 San Diego Meetings Paper

Abstract:     
We investigate the effect of an exogenous change in loan loss provisioning rules on bank risk taking. To identify the effect we exploit that only banks with a high conditional accounting conservatism (CAC) in the pre-adoption period should respond to the change. We conduct a difference-in-differences analysis using a large sample of matched bank-firm data around the introduction of dynamic loan loss provisioning in Spain in 2000. The main result is that banks with a high CAC in the pre-adoption period significantly increased their risk taking in the post-adoption period. These banks lend significantly more to ex ante riskier borrowers, lend more to borrowers with lower accounting quality, and lend more to borrowers that exhibit higher loan growth. Our findings on bank risk taking are consistent with reduced screening and monitoring incentives and highlight unintended effects of the change in the loan loss provisioning rules.

Number of Pages in PDF File: 41

Keywords: Banks, loan loss provisions, bank regulation, bank lending, timeliness of loss recognition

JEL Classification: G21, G28, G32, M41


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Date posted: March 15, 2012 ; Last revised: February 2, 2016

Suggested Citation

Illueca Muñoz, Manuel and Norden, Lars and Udell, Gregory F., Conditional Accounting Conservatism and Bank Risk Taking (February 1, 2016). AFA 2013 San Diego Meetings Paper. Available at SSRN: http://ssrn.com/abstract=2022644 or http://dx.doi.org/10.2139/ssrn.2022644

Contact Information

Manuel Illueca Muñoz (Contact Author)
Universitat Jaume I ( email )
Dep. Finance and Accounting
Campus del Riu Sec
Castellón de la Plana, E-12071
Spain
34964387135 (Phone)
Lars Norden
Brazilian School of Public and Business Administration (EBAPE), Getulio Vargas Foundation (FGV) ( email )
Praia de Botafogo, 190
Rio de Janeiro, 22250-900
Brazil
+552137995759 (Phone)
Gregory F. Udell
Indiana University - Kelley School of Business - Department of Finance ( email )
1309 E. 10th St.
Bloomington, IN 47405
United States

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