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Signaling through Accounting Accruals vs. Financial Policy: Evidence from Bank Loan Loss Provisions and Dividend Changes

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  • Dong-Hoon Yang

    (College of Business Administration, Dongguk Business School, Dongguk University, 3-26 Pil-dong, Chung-gu, Seoul 100-715, South Korea)

Abstract

This study examines substitution or complementarity relationships between discretionary loan loss provisions (LLP) and dividend signals. The statistical tests and results presented in this study indicate that bank managers may signal simultaneously with an accounting policy (i.e., discretionary LLP) and a financial policy (i.e., dividend change). This finding primarily points out the possibility that a bank manager with an incentive to mitigate asymmetric information can select multiple signals to maximize signaling effects. Thus, LLP signaling is a complementary (rather than a substitute) signaling device of dividend signaling.

Suggested Citation

  • Dong-Hoon Yang, 2009. "Signaling through Accounting Accruals vs. Financial Policy: Evidence from Bank Loan Loss Provisions and Dividend Changes," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 12(03), pages 377-402.
    • Handle: RePEc:wsi:rpbfmp:v:12:y:2009:i:03:n:s0219091509001678
    DOI: 10.1142/S0219091509001678
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    Citations

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    Cited by:

    1. Yongtao Hong & Fariz Huseynov & Sabuhi Sardarli & Wei Zhang, 2020. "Bank earnings management and analyst coverage: evidence from loan loss provisions," Review of Quantitative Finance and Accounting, Springer, vol. 55(1), pages 29-54, July.
    2. Zheng Wang, 2014. "Measuring investors’ assessment of earnings persistence: do investors see through smoothed earnings?," Review of Quantitative Finance and Accounting, Springer, vol. 42(4), pages 691-708, May.
    3. James Juichia Lin & Cheng-Few Lee, 2021. "Does managerial reluctance of dividend cuts signal future earnings?," Review of Quantitative Finance and Accounting, Springer, vol. 56(2), pages 453-478, February.
    4. Dung Viet Tran & M. Kabir Hassan & Reza Houston, 2020. "Discretionary loan loss provision behavior in the US banking industry," Review of Quantitative Finance and Accounting, Springer, vol. 55(2), pages 605-645, August.

    More about this item

    Keywords

    Loan loss provisions; multiple signaling; complementary signal; dividend signal;
    All these keywords.

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • G2 - Financial Economics - - Financial Institutions and Services
    • G3 - Financial Economics - - Corporate Finance and Governance

    Statistics

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