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Bank loan loss accounting treatments, credit cycles and crash risk

Andreou, P.C.; Cooper, I.; Louca, C.; Philip, D.

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Authors

I. Cooper

C. Louca



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.

Citation

Andreou, P., Cooper, I., Louca, C., & Philip, D. (2017). Bank loan loss accounting treatments, credit cycles and crash risk. The British Accounting Review, 49(5), 474-492. https://doi.org/10.1016/j.bar.2017.03.002

Journal Article Type Article
Acceptance Date Mar 8, 2017
Online Publication Date Mar 18, 2017
Publication Date Mar 18, 2017
Deposit Date Feb 22, 2017
Publicly Available Date Mar 18, 2019
Journal British Accounting Review
Print ISSN 0890-8389
Publisher Elsevier
Peer Reviewed Peer Reviewed
Volume 49
Issue 5
Pages 474-492
DOI https://doi.org/10.1016/j.bar.2017.03.002
Public URL https://durham-repository.worktribe.com/output/1393486

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