Asymmetric Loan Loss Provision Models

98 Pages Posted: 2 Apr 2019 Last revised: 11 Sep 2020

See all articles by Sudipta Basu

Sudipta Basu

Temple University - Department of Accounting

Justin Vitanza

Temple University - Department of Finance

Wei Wang

Temple University - Department of Accounting

Multiple version iconThere are 2 versions of this paper

Date Written: September 1, 2020

Abstract

Large net loan charge-offs are frequently associated with large decreases in nonperforming loans and large increases in loan loss provisions, inducing a V-shaped relation between loan loss provisions and nonperforming loan changes. Failure to model the asymmetry attributable to net loan charge-offs can change inferences about the presence of earnings management and the effects of delayed loan loss recognition in prior papers that assumed linearity. Future researchers should either include net loan charge-offs in linear models of loan loss provisions or explicitly model the asymmetry induced by omitting net loan charge-offs.

Keywords: loan collectibility, loan charge-offs,misspecification, delayed loan loss recognition, conditional conservatism

JEL Classification: G21, G28, M41, M48

Suggested Citation

Basu, Sudipta and Vitanza, Justin and Wang, Wei, Asymmetric Loan Loss Provision Models (September 1, 2020). Journal of Accounting & Economics (JAE), Forthcoming, Available at SSRN: https://ssrn.com/abstract=3349530 or http://dx.doi.org/10.2139/ssrn.3349530

Sudipta Basu (Contact Author)

Temple University - Department of Accounting ( email )

Philadelphia, PA 19122
United States
215.204.0489 (Phone)
215.204.5587 (Fax)

Justin Vitanza

Temple University - Department of Finance ( email )

Fox School of Business and Management
Philadelphia, PA 19122
United States

Wei Wang

Temple University - Department of Accounting ( email )

Alter Hall 450
1801 Liacouras Walk
Philadelphia, PA 19122
United States

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