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Real Activity Forecasts Using Loan Portfolio Information

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  • UROOJ KHAN
  • N. BUGRA OZEL

Abstract

To extend and monitor loans, banks collect detailed and proprietary information about the financial prospects of their customers, many of whom are local businesses and households. Therefore, banks’ loan portfolios contain potentially useful information about local economic conditions. We investigate the association between information in loan portfolios and local economic conditions. Using a sample of U.S. commercial banks from 1990:Q1 to 2013:Q4, we document that information in loan portfolios aggregated to the state level is associated with current and future changes in statewide economic conditions. Furthermore, the provision for loan and lease losses contains information incremental to leading indicators of state‐level economic activity and recessions. Loan portfolio information also helps to improve predictions of economic conditions at more granular levels, such as at the commuting zone level. We discuss the relevance of these findings for economic analysis and forecasting, and the relation of our study to prior work on the informativeness of accounting information about the macroeconomy.

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  • Urooj Khan & N. Bugra Ozel, 2016. "Real Activity Forecasts Using Loan Portfolio Information," Journal of Accounting Research, Wiley Blackwell, vol. 54(3), pages 895-937, June.
    • Handle: RePEc:bla:joares:v:54:y:2016:i:3:p:895-937
    DOI: 10.1111/1475-679X.12110
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    2. Spokeviciute, Laima & Keasey, Kevin & Vallascas, Francesco, 2019. "Do financial crises cleanse the banking industry? Evidence from US commercial bank exits," Journal of Banking & Finance, Elsevier, vol. 99(C), pages 222-236.
    3. Ambrocio, Gene & Hasan, Iftekhar, 2018. "Private information and lender discretion across time and institutions," Research Discussion Papers 17/2018, Bank of Finland.
    4. Ambrocio, Gene & Hasan, Iftekhar, 2019. "What drives discretion in bank lending? Some evidence and a link to private information," Journal of Banking & Finance, Elsevier, vol. 106(C), pages 323-340.
    5. Xiao, Zehua & Zhao, Yitong, 2024. "Accounting conservatism as a strategy to deter entry: Evidence from China's Negative List System," International Review of Financial Analysis, Elsevier, vol. 93(C).
    6. Binz, Oliver & Mayew, William J. & Nallareddy, Suresh, 2022. "Firms’ response to macroeconomic estimation errors," Journal of Accounting and Economics, Elsevier, vol. 73(2).
    7. Jaewoo Kim & Bryce Schonberger & Charles Wasley & Hunter Land, 2020. "Intertemporal variation in the information content of aggregate earnings and its effect on the aggregate earnings-return relation," Review of Accounting Studies, Springer, vol. 25(4), pages 1410-1443, December.
    8. repec:zbw:bofrdp:2018_017 is not listed on IDEAS
    9. Sehwa Kim, 2022. "Delays in Banks’ Loan Loss Provisioning and Economic Downturns: Evidence from the U.S. Housing Market," Journal of Accounting Research, Wiley Blackwell, vol. 60(3), pages 711-754, June.
    10. Eduardo Minuci & Scott Schuh, 2022. "Are West Virginia Banks Unique?," Working Papers 22-03, Department of Economics, West Virginia University.
    11. Ambrocio, Gene & Hasan, Iftekhar, 2018. "Private information and lender discretion across time and institutions," Bank of Finland Research Discussion Papers 17/2018, Bank of Finland.
    12. Tomy, Rimmy E., 2019. "Threat of entry and the use of discretion in banks’ financial reporting," Journal of Accounting and Economics, Elsevier, vol. 67(1), pages 1-35.
    13. Stephanie F. Cheng, 2021. "The Information Externality of Public Firms’ Financial Information in the State‐Bond Secondary Market," Journal of Accounting Research, Wiley Blackwell, vol. 59(2), pages 529-574, May.

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