Bank Loan Loss Provisions: A Reexamination of Capital Management, Earnings Management and Signaling Effects

39 Pages Posted: 6 May 1998

See all articles by Anwer S. Ahmed

Anwer S. Ahmed

Texas A&M University - Mays Business School

Carolyn Takeda

University of Florida - Department of Finance, Insurance and Real Estate

Shawn Thomas

University of Pittsburgh - Katz Graduate School of Business

Multiple version iconThere are 2 versions of this paper

Date Written: November 1998

Abstract

This paper exploits the 1990 change in capital adequacy regulations to construct more powerful tests of capital and earnings management effects on bank loan loss provisions. We find strong support for the hypothesis that loan loss provisions are used for capital management. We do not find evidence of earnings management via loan loss provisions. We also document the reasons for the conflicting results on these effects observed in prior studies. Additionally, we find that loan loss provisions are negatively related to both future earnings changes and contemporaneous stock returns contrary to the signaling results documented in prior work.

JEL Classification: M41, M43, G21, K23

Suggested Citation

Ahmed, Anwer S. and Takeda, Carolyn and Thomas, Shawn, Bank Loan Loss Provisions: A Reexamination of Capital Management, Earnings Management and Signaling Effects (November 1998). Available at SSRN: https://ssrn.com/abstract=84188 or http://dx.doi.org/10.2139/ssrn.84188

Anwer S. Ahmed (Contact Author)

Texas A&M University - Mays Business School ( email )

430 Wehner
College Station, TX 77843-4353
United States

Carolyn Takeda

University of Florida - Department of Finance, Insurance and Real Estate ( email )

P.O. Box 117168
College of Business Administration
Gainsville, FL 32611-7168
United States
352-392-0340 (Phone)
352-392-0301 (Fax)

Shawn Thomas

University of Pittsburgh - Katz Graduate School of Business ( email )

246 Mervis Hall
Pittsburgh, PA 15260
United States
412-648-1648 (Phone)
412-648-1693 (Fax)

HOME PAGE: http://www.pitt.edu/~shthomas/index.htm

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