Abstract

http://ssrn.com/abstract=2192586
 
 

References (83)



 


 



The Effects of Credit Competition on Banks’ Loan Loss Provision Timeliness


Yiwei Dou


New York University (NYU) - Department of Accounting, Taxation & Business Law

Stephen G. Ryan


New York University (NYU) - Leonard N. Stern School of Business

Youli Zou


George Washington University - Department of Accountancy

May 7, 2014


Abstract:     
Prior research has documented specific benefits, but not costs, of timelier loan loss provisioning for reporting banks. We examine one such cost in this paper. We argue that in a local loan origination market, incumbent banks’ reported loan loss provisions shape potential entrants’ perception of incumbents’ loan underwriting quality and thus the desirability of market entry. By loan underwriting quality, we mean banks’ ability to evaluate credit risk to determine which loans to grant as well as the interest rates and other contractual terms of granted loans. Incumbents with better loan underwriting quality leave fewer profitable lending opportunities for potential entrants. We use variation in interstate branching deregulation across contiguous counties of adjacent states from 1994 to 2005 as a natural experiment to investigate how increased threat of entry affects incumbent banks’ loan loss provision timeliness. We predict and find that incumbents more subject to entry reduce the timeliness of their bad news (but not good news) loan loss provisions to increase their perceived loan underwriting quality. Further, we predict and find variation in this behavior across loan origination markets attributable to incumbents’ loan portfolio composition and subsequent entry in these markets.

Number of Pages in PDF File: 50

Keywords: banks, deregulation, interstate branching, credit competition, loan loss provision, timeliness, natural experiment

JEL Classification: G21, L10, L89, M41

working papers series


Download This Paper

Date posted: December 22, 2012 ; Last revised: May 8, 2014

Suggested Citation

Dou, Yiwei and Ryan, Stephen G. and Zou, Youli, The Effects of Credit Competition on Banks’ Loan Loss Provision Timeliness (May 7, 2014). Available at SSRN: http://ssrn.com/abstract=2192586 or http://dx.doi.org/10.2139/ssrn.2192586

Contact Information

Yiwei Dou (Contact Author)
New York University (NYU) - Department of Accounting, Taxation & Business Law ( email )
40 West 4th Street
New York, NY 10012
United States
Stephen G. Ryan
New York University (NYU) - Leonard N. Stern School of Business ( email )
44 West 4th Street, Suite 10-73
New York, NY 10012-1118
United States
212-998-0020 (Phone)
212-995-4004 (Fax)
Youli Zou
George Washington University - Department of Accountancy ( email )
School of Business and Public Management
Washington, DC 20052
United States
Feedback to SSRN


Paper statistics
Abstract Views: 1,019
Downloads: 210
Download Rank: 83,909
References:  83

© 2014 Social Science Electronic Publishing, Inc. All Rights Reserved.  FAQ   Terms of Use   Privacy Policy   Copyright   Contact Us
This page was processed by apollo4 in 0.360 seconds