Regulatory pressure and income smoothing by banks in response to anticipated changes to the Basel II Accord

Artikel

We examine the effects of the revised Basel II rules on bank managers' discretionary behavior, specifically income smoothing and loan loss provisioning. As the revised rules exert greater regulatory pressure on corporate than retail banking, we predict corporate bank managers to reduce risk-taking activities or increase income smoothing. Analysis of segmental reports reveals greater (less) income smoothing in the corporate banking segments of low-capital (high-capital) banks during the Basel II period, with their managers recognizing loan loss provisions in a less timely fashion. We find no such effects for retail banking. Although we document an initially negative market reaction to the regulatory announcements, that reaction weakens over time. Overall, the study highlights the unintended consequences of the banking rule changes.

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• Language: Englisch

References and Relationships

• Bibliographic citation: Journal: China Journal of Accounting Research ; ISSN: 1755-3091 ; Volume: 10 ; Year: 2017 ; Issue: 1 ; Pages: 9-32 ; Amsterdam: Elsevier

Classification and Topics

• Classification: Management ; Accounting ; Accounting and Auditing: Government Policy and Regulation
• Subject: Basel Accord ; Income smoothing ; Loan loss provisions ; Corporate banking ; Retail banking

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Lim, Chu Yeong ; Yong, Kevin Ow
• Event: Veröffentlichung
• (who): Elsevier
• (where): Amsterdam
• (when): 2017

Further information

• DOI: doi:10.1016/j.cjar.2016.08.003
• Handle: http://hdl.handle.net/10419/187662