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Determinants of bank income smoothing using loan loss provisions in the United Kingdom

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  • Peterson K. Ozili

Abstract

Purpose - This paper examines the determinants of bank income smoothing using loan loss provisions in the United Kingdom or Great Britain from 1999 to 2017. Design/methodology/approach - The study used ordinary least square (OLS) regression and applying the HAC robust standard error correction test. Findings - The findings showed that UK banks use loan loss provision for income smoothing purposes. Income smoothing is greater in times of high economic policy uncertainty. The extent of bank income smoothing is reduced by foreign bank presence, UK GAAP adoption, IFRS9 adoption, and high levels of voice and accountability. Also, there is reduced income smoothing using loan loss provisions during a financial crisis and in periods of economic prosperity. Research limitations/implications - The implication is that economic conditions, institutional governance and accounting disclosure rules can influence the extent of bank income smoothing in the United Kingdom. The findings of the study contribute to several studies that explore the determinants of bank income smoothing. Originality/value - No study has extensively examined the determinants of bank income smoothing in Great Britain or the United Kingdom. The present study fills this gap in the literature.

Suggested Citation

  • 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.
    • Handle: RePEc:eme:jeaspp:jeas-09-2021-0192
    DOI: 10.1108/JEAS-09-2021-0192
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    More about this item

    Keywords

    Earnings management; United Kingdom; Loan loss provisions; Income smoothing; Economic policy uncertainty; Great Britain; Accounting disclosure; Financial crisis; G21; G28; M10; M14;
    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
    • M10 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - General
    • M14 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Corporate Culture; Diversity; Social Responsibility

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