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
Date Written: 2019
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: Suggested Citation