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The impact of banking regulations and accounting standards on estimating discretionary loan loss provisions

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  • Pandey, Ashish
  • Tripathi, Abhinava
  • Guhathakurta, Kousik

Abstract

Loan loss provisions (LLP) are relatively large accruals for commercial banks. The discretionary nature of LLP makes them particularly useful in examining the impact of regulations on managerial behaviour. The accounting standards in emerging countries are often rule-based instead of the principle-based approach adopted in developed countries. We propose and compare a new specification incorporating the rule-based approach with nine widely employed LLP specifications used in the literature. We show empirically, employing a range of model selection criteria, that our proposed specification is more suitable for understanding the information content of LLP in emerging countries. In this study, all the specifications are compared and examined using data from India, a large and important emerging economy.

Suggested Citation

  • Pandey, Ashish & Tripathi, Abhinava & Guhathakurta, Kousik, 2022. "The impact of banking regulations and accounting standards on estimating discretionary loan loss provisions," Finance Research Letters, Elsevier, vol. 44(C).
    • Handle: RePEc:eee:finlet:v:44:y:2022:i:c:s1544612321001495
    DOI: 10.1016/j.frl.2021.102068
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    References listed on IDEAS

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    Cited by:

    1. Pandey, Ashish & Guhathakurta, Kousik, 2022. "Value relevance of loan loss provision components and the choice of model specification," Advances in accounting, Elsevier, vol. 58(C).
    2. Salazar, Yadira & Merello, Paloma & Zorio-Grima, Ana, 2023. "IFRS 9, banking risk and COVID-19: Evidence from Europe," Finance Research Letters, Elsevier, vol. 56(C).

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    More about this item

    Keywords

    Loan loss provision; Discretionary provision; Nonperforming asset; Accruals; Managerial behaviour; Incurred-loss approach;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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