Bank Executive Overconfidence and Delayed Expected Loss Recognition

44 Pages Posted: 12 Sep 2012 Last revised: 29 Oct 2018

See all articles by Dirk E. Black

Dirk E. Black

University of Nebraska at Lincoln - School of Accountancy

John Gallemore

University of Chicago - Booth School of Business

Date Written: March 21, 2013

Abstract

While prior work shows that delayed expected loan loss recognition is related to lending propensity (Beatty and Liao, 2011), bank risk (Bushman and Williams, 2011), and bank risk taking (Bushman and Williams, 2012), we provide evidence that executive overconfidence is a potential driver of delayed expected loan loss recognition. We find that overconfident bank CEOs and CFOs recognize lower loan loss provisions and incorporate current and future deterioration in nonperforming loans in their loan loss provisions less than other bank CEOs and CFOs. Our evidence of delayed expected loss recognition is driven primarily by CFOs, consistent with CFOs being closer to the financial reporting function than CEOs. The study is important because it demonstrates that manager characteristics can have meaningful economic consequences for financial institutions through the reporting of asset risk.

Keywords: Bank executives, overconfidence, loan loss provision, delayed expected loss recognition

JEL Classification: E58, G21, G32, G34, M14, M41

Suggested Citation

Black, Dirk E. and Gallemore, John, Bank Executive Overconfidence and Delayed Expected Loss Recognition (March 21, 2013). Available at SSRN: https://ssrn.com/abstract=2144293 or http://dx.doi.org/10.2139/ssrn.2144293

Dirk E. Black (Contact Author)

University of Nebraska at Lincoln - School of Accountancy ( email )

307 College of Business Administration
Lincoln, NE 68588-0488
United States

John Gallemore

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
476
Abstract Views
2,198
rank
59,902
PlumX Metrics