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Title: Bank loan loss accounting treatments, credit cycles and crash risk
Authors: Andreou, Panayiotis 
Cooper, Ian 
Louca, Christodoulos 
Philip, Dennis 
Keywords: Loan loss accounting;Crash risk;Accounting conservatism;Bank lending
Category: Other Social Sciences
Field: Social Sciences
Issue Date: 1-Sep-2017
Publisher: Academic Press
Source: British Accounting Review, Volume 49, Issue 5, 2017, Pages 474-492
Abstract: Banks that follow conditional conservatism in their loan loss accounting treatments benefit from a reduction in crash risk. The key discretionary loan loss accounting channels are provisions and allowances. We show that conditional conservatism reduces crash risk of small banks during periods of credit contraction and boom. Interestingly, for large banks, crash risk is not reduced by more conservative accounting even for those with higher levels of opacity. Hence regulation prompting for more conservative bank loan loss accounting does not present a significant opportunity to limit systemic effects arising from abrupt price declines in the stocks of large banks.
ISSN: 08908389
Rights: © 2017 Elsevier Ltd
Type: Article
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