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Profit smoothing of European banks under IFRS 9

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  • Oľga Jakubíková

Abstract

The aim of this paper is to examine whether banks engage in profit smoothing using loan loss provisions under the new provisioning rules according to IFRS 9. Due to relatively loose definitions of provisioning principles and use of macroeconomic predictions under IFRS 9, there is certain managerial discretion expected allowing banks to reduce the variability of profits over time using loan loss provisions. The hypothesis that banks use loan loss provisions to smooth their profits under IFRS 9 was tested with panel regression analysis on the panel of 27 EU member countries for period 1Q2015 - 2Q2021. The evidence of profit smoothing was not confirmed neither in IFRS 9, nor in IAS 39 period, therefore, the hypothesis was rejected on 1% significance level.

Suggested Citation

  • Oľga Jakubíková, 2022. "Profit smoothing of European banks under IFRS 9," FFA Working Papers 4.003, Prague University of Economics and Business, revised 21 Feb 2022.
    • Handle: RePEc:prg:jnlwps:v:4:y:2022:id:4.003
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    References listed on IDEAS

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    More about this item

    Keywords

    IFRS 9; loan loss provisions; profit smoothing;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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