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Bank loan loss provisioning during election years: cross-country evidence

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  • Peterson K. Ozili

Abstract

Purpose - The purpose of this paper is to examine bank loan loss provisioning behavior during election years – focusing on the effect of elections on banking sector loan loss provisioning. Design/methodology/approach - Regression analysis was used to analyze the behavior of bank loan loss provisioning in developed countries during election years. Findings - The findings reveal that the banking sectors in developed countries have higher loan loss provisions (LLPs) in election years. Also, income smoothing is present in election years which supports the income smoothing hypothesis. Also, banking sectors with high capital levels have higher LLPs. Although, there were no significant differences in bank loan loss provisioning during election years across the four bloc, the EU banking sectors and the banking sectors of BIS member countries generally have higher LLPs while the non-EU banking sectors and the banking sectors of the G7 member countries generally have fewer LLPs. Originality/value - The literature has not explored the effect of political factors such as “election-year risk” on the managers’ discretion in banks. This is the first study that explores the effect of political change on managerial discretion in banks.

Suggested Citation

  • Peterson K. Ozili, 2019. "Bank loan loss provisioning during election years: cross-country evidence," International Journal of Managerial Finance, Emerald Group Publishing Limited, vol. 16(4), pages 413-431, December.
    • Handle: RePEc:eme:ijmfpp:ijmf-09-2019-0317
    DOI: 10.1108/IJMF-09-2019-0317
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    Cited by:

    1. Peterson K. Ozili, 2022. "Determinants of bank income smoothing using loan loss provisions in the United Kingdom," Journal of Economic and Administrative Sciences, Emerald Group Publishing Limited, vol. 40(3), pages 641-657, February.
    2. Marwa Elnahass & Mohamed Marie & Mohammed Elgammal, 2022. "Terrorist attacks and bank financial stability: evidence from MENA economies," Review of Quantitative Finance and Accounting, Springer, vol. 59(1), pages 383-427, July.
    3. MVK, Jagannath & Maitra, Debasish, 2023. "Do election cycles, political stability, and government effectiveness matter for the risk of banks? Evidence from Indian banks," Journal of Behavioral and Experimental Finance, Elsevier, vol. 39(C).
    4. Ozili, Peterson K, 2019. "Bank loan loss provisioning during election years in Nigeria," MPRA Paper 96704, University Library of Munich, Germany.
    5. Ozili, Peterson Kitakogelu, 2021. "Bank earnings management using loan loss provisions: comparing the UK, France, South Africa and Egypt," MPRA Paper 108506, University Library of Munich, Germany.
    6. Albulena Shala & Valentin Toçi & Skender Ahmeti, 2020. "Income smoothing through loan loss provisions in south and Eastern European banks," Zbornik radova Ekonomskog fakulteta u Rijeci/Proceedings of Rijeka Faculty of Economics, University of Rijeka, Faculty of Economics and Business, vol. 38(2), pages 429-452.
    7. Peterson K. Ozili, 2020. "Banking sector earnings management using loan loss provisions in the Fintech era," International Journal of Managerial Finance, Emerald Group Publishing Limited, vol. 18(1), pages 75-93, December.
    8. Peterson K. Ozili, 2024. "Does banking sector support for achieving the sustainable development goals affect bank loan loss provisions? International evidence," Economic Change and Restructuring, Springer, vol. 57(2), pages 1-39, April.
    9. Ghosh, Saibal, 2022. "Elections and provisioning behavior: Assessing the Indian evidence," Economic Systems, Elsevier, vol. 46(1).

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    More about this item

    Keywords

    Financial reporting; Banks; Election; Loan loss provisions; European Union; Income smoothing; G21; G28;
    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
    • M4 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting
    • M42 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Auditing
    • M48 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Government Policy and Regulation

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