Unrecognized Expected Credit Losses and Bank Share Prices

• 成果类型: Article
• 署名作者: Wheeler, P. Barrett
• 署名单位: Tulane University
• 刊物名称: JOURNAL OF ACCOUNTING RESEARCH
• ISSN/ISSBN: 0021-8456
• DOI: 10.1111/1475-679X.12353
• 发表日期: 2021
• 页码: 805-866
• 关键词: LOAN LOSS PROVISIONS; SECURITY RETURNS; earnings; DISCLOSURES; INFORMATION; management; BEHAVIOR; IMPACT

摘要

Accounting for credit losses under U.S. GAAP is transitioning from an incurred to an expected loss model. The model change was motivated by concerns that reporting only incurred losses does not provide investors with sufficient and timely information about banks' credit risk. In this paper, I develop a measure of lifetime expected credit losses using vintage analysis to examine whether stock prices reflect information about unrecognized expected credit losses in an incurred loss regime. Consistent with investors being able to obtain information about expected losses that are not recognized in the financial statements, I find that unrecognized expected credit losses are negatively associated with bank stock prices. The pricing of these losses is stronger for larger banks, consistent with lower costs of obtaining this information for banks with better information environments. I also find that recorded allowances were less than estimated expected losses, on average, consistent with concerns that implementing the expected loss model will adversely impact regulatory capital adequacy.