Andreou, P.C. and Cooper, I. and Louca, C. and Philip, D. (2017) 'Bank loan loss accounting treatments, credit cycles and crash risk.', British accounting review., 49 (5). pp. 474-492.
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.
|Full text:||(AM) Accepted Manuscript|
Available under License - Creative Commons Attribution Non-commercial No Derivatives.
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|Publisher Web site:||https://doi.org/10.1016/j.bar.2017.03.002|
|Publisher statement:||© 2017 This manuscript version is made available under the CC-BY-NC-ND 4.0 license http://creativecommons.org/licenses/by-nc-nd/4.0/|
|Date accepted:||08 March 2017|
|Date deposited:||22 February 2017|
|Date of first online publication:||18 March 2017|
|Date first made open access:||18 March 2019|
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