Loan loss provisions, accounting constraints, and bank ownership structure

Files

wp11-09.pdf (624.6 KB)

Links to Files

https://www.sciencedirect.com/science/article/abs/pii/S0148619514000794

Permanent Link

https://doi.org/10.1016/j.jeconbus.2014.12.003
 http://hdl.handle.net/11603/19086

Collections

UMBC Economics Department
UMBC Faculty Collection

Author/Creator

Author/Creator ORCID

Date

2014-12-31

Type of Work

journal articles preprints
Text

Department

Program

Citation of Original Publication

Eliana Balla and Morgan J.Rose, Loan loss provisions, accounting constraints, and bank ownership structure, Journal of Economics and Business Volume 78, Pages 92-117 (2015), https://doi.org/10.1016/j.jeconbus.2014.12.003

Rights

This item is likely protected under Title 17 of the U.S. Copyright Law. Unless on a Creative Commons license, for uses protected by Copyright Law, contact the copyright holder or the author.
© 2020 Elsevier B.V.

Subjects

Abstract

We examine bank-level changes in the relationship between earnings and loan loss provisioning, a measure of earnings management, following the tightening of accounting constraints associated with the SEC's 1998 SunTrust Bank decision. By exploiting both temporal variation in the regulatory environment and cross-sectional variation in bank ownership structure, we find evidence that shortly after the SEC action, the relationship between earnings and provisions weakened for publicly-held banks but not for privately-held banks, consistent with reduced earnings management among publicly-held banks only. This difference does not persist over time, with evidence indicating a weakening of the relationship for both ownership types.