Commercial Bank Loan Loss Provision Discretion: Signals and Signal-Jamming

Posted: 24 Mar 1999

See all articles by Malcolm McLelland

Malcolm McLelland

McLelland + Palazzi | Financial economics

Date Written: February 20, 1999

Abstract

A disinformative signal is defined as a signal that results in equity traders revising their distributions over some pricing-relevant variable such that their expectations become less precise. A hypothesis is developed, based on Scharfstein and Stein's (1990) herd behavior model, that discretionary disclosures can be disinformative to equity traders under certain conditions. Empirical evidence consistent with this hypothesis is presented in simultaneous long- and short-window associations between bank loan loss provision components, equity return variance, and share volume. Accordingly, this study presents both theory and empirical evidence suggesting that discretionary accounting disclosures can be disinformative under certain conditions.

JEL Classification: G12, G14, M41, M45

Suggested Citation

McLelland, Malcolm, Commercial Bank Loan Loss Provision Discretion: Signals and Signal-Jamming (February 20, 1999). Available at SSRN: https://ssrn.com/abstract=152669

Malcolm McLelland (Contact Author)

McLelland + Palazzi | Financial economics ( email )

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