Abstract

http://ssrn.com/abstract=2192586
 
 

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The Effect of Credit Competition on Banks’ Loan Loss Provisions


Yiwei Dou


New York University (NYU) - Department of Accounting

Stephen G. Ryan


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

Youli Zou


George Washington University - Department of Accountancy

May 28, 2016


Abstract:     
Using interstate branching deregulation across contiguous counties of adjacent states, we investigate the effect of entry threat on incumbent banks’ loan loss provisions. Incumbents exposed to threat have offsetting incentives to report provisions; lower provisions make incumbents’ loan underwriting quality appear better, deterring entry, but local economic conditions appear better, encouraging entry. We find that the incentive to increase apparent loan underwriting quality dominates on average. We further find that this incentive is stronger in counties with a higher proportion of heterogeneous loans, and the other incentive dominates in counties with both few heterogeneous loans and highly volatile economic conditions.

Number of Pages in PDF File: 48

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

JEL Classification: G21, L10, L89, M41


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Date posted: December 22, 2012 ; Last revised: May 29, 2016

Suggested Citation

Dou, Yiwei and Ryan, Stephen G. and Zou, Youli, The Effect of Credit Competition on Banks’ Loan Loss Provisions (May 28, 2016). 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 ( email )
40 West 4th Street
Suite 10-180
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)
Youli Zou
George Washington University - Department of Accountancy ( email )
School of Business and Public Management
Washington, DC 20052
United States
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