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Banks’ Income Smoothing in the Basel Period: Evidence from European Union

In: Economic and Financial Challenges for Eastern Europe

Author

Listed:
  • Konstantinos Vasilakopoulos

    (Athens University of Economics and Business)

  • Christos Tzovas

    (Athens University of Economics and Business)

  • Apostolos A. Ballas

    (Athens University of Economics and Business)

Abstract

This paper investigates whether European banks smooth income and regulatory capital ratios through loan loss provisions in the Basel period. Using a sample of 1064 bank-year observations from 26 European Union countries, we find that banks use loan loss provisions in order to smooth income after the adoption of IFRS and the Basel regulatory framework. However, our results do not support the regulatory capital management hypothesis. In addition, we find that the risk level and direct market discipline affect bank managers’ accounting discretion. On the other hand, we do not find evidence to support the hypothesis that the legal environment plays a substantial role in banks’ accounting policy decisions.

Suggested Citation

  • Konstantinos Vasilakopoulos & Christos Tzovas & Apostolos A. Ballas, 2019. "Banks’ Income Smoothing in the Basel Period: Evidence from European Union," Springer Proceedings in Business and Economics, in: Nicos Sykianakis & Persefoni Polychronidou & Anastasios Karasavvoglou (ed.), Economic and Financial Challenges for Eastern Europe, pages 47-66, Springer.
    • Handle: RePEc:spr:prbchp:978-3-030-12169-3_4
    DOI: 10.1007/978-3-030-12169-3_4
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