Switching from Incurred to Expected Loan Loss Provisioning: Early Evidence

• 成果类型: Article
• 署名作者: Lopez-espinosa, German; Ormazabal, Gaizka; Sakasai, Yuki
• 署名单位: University of Navarra; IESE Business School; University of Navarra; IESE Business School; European Corporate Governance Institute; University of Navarra; IESE Business School
• 刊物名称: JOURNAL OF ACCOUNTING RESEARCH
• ISSN/ISSBN: 0021-8456
• DOI: 10.1111/1475-679X.12354
• 发表日期: 2021
• 页码: 757-804
• 关键词: earnings management; CAPITAL MANAGEMENT; risk disclosures; banks; SECURITIZATIONS; INFORMATION; exposure; IMPACT

摘要

This paper provides early evidence on the effect of global regulation mandating a switch from loan loss provisioning (LLP) based on incurred credit losses (ICLs) to LLP based on expected credit losses (ECLs). Using a sample of systemically important banks from 74 countries, we find that ECL provisions are more predictive of future bank risk than ICL provisions. Corroborating that the switch to ECL provisioning results in more information to assess bank risk, we also observe that the announcement of a larger first-time impact of the accounting change elicits lower stock returns and higher changes in credit default swap spreads. Critically, these patterns are most pronounced when credit conditions deteriorate. Additional analyses show that the higher information content of the ECL model stems from the provisions for nondefaulted loans, which did not exist under ICL. Our study contributes to the debate on the effect of the ECL model on procyclicality, an especially pressing issue in the context of the current pandemic.