Loan Loss Reserves and Bank Stock Returns: Evidence from Asian Banks

20 Pages Posted: 15 Aug 2008 Last revised: 11 Oct 2010

See all articles by Agusman Agusman

Agusman Agusman

Bank Indonesia

Gary S. Monroe

University of New South Wales (UNSW) - Australian School of Business

Dominic Gasbarro

Murdoch University

J. Kenton Zumwalt

Colorado State University, Fort Collins - Department of Finance & Real Estate

Date Written: June 26, 2009

Abstract

This study examines the effects of the loan-loss-reserves-to-gross-loans ratio, a proxy for credit risk, on bank stock returns for a sample of 42 listed Asian banks during the period 1999-2007. By applying a panel data analysis that includes a control for market returns, book-to-market ratio, size, and country-specific factors, the results show that the ratio has a negative and significant influence on bank stock returns. Overall, the results suggest that credit risk remains a major threat to Asian banks. In addition, while loan loss reserves are needed for mitigating credit risk, investors do not consider them as good news or a credible signal concerning bank intentions to resolve problem loans.

Keywords: bank stock returns, loan loss reserves, credit risk, Asian banks

JEL Classification: C33, G10, G14, G21, M41

Suggested Citation

Agusman, Agusman and Monroe, Gary S. and Gasbarro, Dominic and Zumwalt, J. Kenton, Loan Loss Reserves and Bank Stock Returns: Evidence from Asian Banks (June 26, 2009). 21st Australasian Finance and Banking Conference 2008 Paper. Available at SSRN: https://ssrn.com/abstract=1227362 or http://dx.doi.org/10.2139/ssrn.1227362

Agusman Agusman (Contact Author)

Bank Indonesia ( email )

Jl. M.H.Thamrin No.2
Jakarta, 10350
Indonesia
62-21-3818075 (Phone)
62-21-3518629 (Fax)

Gary S. Monroe

University of New South Wales (UNSW) - Australian School of Business ( email )

UNSW Business School
High St
Sydney, NSW 2052
Australia
+61293856443 (Phone)

Dominic Gasbarro

Murdoch University ( email )

South Street
Murdoch 6150, Western Australia
Australia

J. Kenton Zumwalt

Colorado State University, Fort Collins - Department of Finance & Real Estate ( email )

Fort Collins, CO 80523
United States

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
349
Abstract Views
1,654
rank
89,858
PlumX Metrics