Bank Loan Loss Provisions, Risk-Taking and Bank Intangibles

Afro-Asian Journal of Finance and Accounting, 9(1): 21-39

34 Pages Posted: 31 Jan 2018 Last revised: 28 May 2019

See all articles by Peterson K Ozili

Peterson K Ozili

University of Essex - Essex Business School; Central Bank of Nigeria

Date Written: 2019

Abstract

This article investigates the relationship between discretionary loan loss provisions and bank intangibles among African banks. Prior studies examine how intangible assets affect firms’ profitability and valuation decisions with almost no focus on the role of loan loss provisions. We investigate whether banks increase (decrease) loan loss provisions in response to risks associated with investment in intangible assets. We find that discretionary loan loss provisions are inversely associated with bank intangible assets and change in intangible assets, but the inverse association is weakened in environments with strong investor protection. We also observe that income smoothing is reduced among banks that have large intangible asset investment, while income smoothing is pronounced among banks that have few intangible asset investments, but this behaviour is reduced for banks in environments with strong minority shareholders right protection.

Keywords: Banks, Income Smoothing, Financial Institutions, Financial Reporting, Intangible Assets, Loan Loss Provisions, Signalling, Bank Valuation, Bank Risk-Taking, Africa

JEL Classification: G21, G32, M41

Suggested Citation

Ozili, Peterson Kitakogelu, Bank Loan Loss Provisions, Risk-Taking and Bank Intangibles (2019). Afro-Asian Journal of Finance and Accounting, 9(1): 21-39. Available at SSRN: https://ssrn.com/abstract=3108341

Peterson Kitakogelu Ozili (Contact Author)

University of Essex - Essex Business School ( email )

Wivenhoe Park
Colchester, CO4 3SQ
United Kingdom

Central Bank of Nigeria ( email )

Plot 33, Abubakar Tafawa Balewa Way
Central Business District, Cadastral Zone
Abuja
Nigeria

Register to save articles to
your library

Register

Paper statistics

Downloads
49
Abstract Views
638
PlumX Metrics