Bank Income Smoothing, Ownership Concentration and the Regulatory Environment

54 Pages Posted: 22 Aug 2012 Last revised: 19 May 2015

See all articles by Vincent Bouvatier

Vincent Bouvatier

University Paris-Est Créteil (UPEC) - ERUDITE

Laetitia Lepetit

University of Limoges - Laboratoire d'Analyse et de Prospectives Économiques (LAPE)

Frank Strobel

University of Birmingham - Department of Economics

Date Written: February 19, 2014

Abstract

We empirically examine whether the way a bank might use loan loss provisions to smooth its income is influenced by its ownership concentration and the regulatory environment. Using a panel of European commercial banks, we find evidence that banks with more concentrated ownership use discretionary loan loss provisions to smooth their income. This behavior is less pronounced in countries with stronger supervisory regimes or higher external audit quality. Banks with low levels of ownership concentration do not display such discretionary income smoothing behavior. This suggests the need to improve existing or implement new corporate governance mechanisms.

Keywords: income smoothing; loan loss provisions; ownership concentration; regulatory environment

JEL Classification: G21; G28

Suggested Citation

Bouvatier, Vincent and Lepetit, Laetitia and Strobel, Frank, Bank Income Smoothing, Ownership Concentration and the Regulatory Environment (February 19, 2014). Journal of Banking and Finance, Vol. 41, April 2014, pp. 253–270; doi:10.1016/j.jbankfin.2013.12.001. Available at SSRN: https://ssrn.com/abstract=2133345 or http://dx.doi.org/10.2139/ssrn.2133345

Vincent Bouvatier

University Paris-Est Créteil (UPEC) - ERUDITE ( email )

Mail des Mèches
61 avenue du Général de Gaulle
Créteil Cedex, 94010
France

Laetitia Lepetit

University of Limoges - Laboratoire d'Analyse et de Prospectives Économiques (LAPE) ( email )

5 rue Felix Eboue
BP 3127
Limoges Cedex 1, 87031
France
+33555149213 (Phone)

HOME PAGE: http://www.unilim.fr/lape/

Frank Strobel (Contact Author)

University of Birmingham - Department of Economics ( email )

Economics Department
Birmingham, B15 2TT
United Kingdom

HOME PAGE: http://www.economics.bham.ac.uk

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