Hands in the Cookie Jar: Exploiting Loan Loss Provisions under Bank Financial Distress

Malek El Diri; Timothy King; Laima Spokeviciute; Jonathan  Williams

doi:10.1016/j.econlet.2021.110098

Hands in the Cookie Jar: Exploiting Loan Loss Provisions under Bank Financial Distress

Malek El Diri
, Timothy King
, Laima Spokeviciute
, Jonathan Williams

The Albert Gubay Business School

University of Kent
University of Leeds
Cardiff University

Research output: Contribution to journal › Article › peer-review

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Abstract

We investigate earnings management (EM) behaviour at failed banks by examining the intensity and direction of EM around FDIC-insured commercial bank failures. Our empirical analysis indicates that failing banks engage in EM to a significantly greater extent than non-failing banks. Our results show that failing banks’ discretion over loan loss provisions ranges from aggressive (upwards EM) to conservative (downwards EM).

Original language	English
Article number	110098
Journal	Economics Letters
Volume	209
Early online date	6 Oct 2021
DOIs	https://doi.org/10.1016/j.econlet.2021.110098
Publication status	Published - Dec 2021

Keywords

Earnings Management
Bank failures
Banks

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10.1016/j.econlet.2021.110098

2021 Hands in the cookie jarAccepted author manuscript, 357 KBLicence: CC BY-NC-ND

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title = "Hands in the Cookie Jar: Exploiting Loan Loss Provisions under Bank Financial Distress",

abstract = "We investigate earnings management (EM) behaviour at failed banks by examining the intensity and direction of EM around FDIC-insured commercial bank failures. Our empirical analysis indicates that failing banks engage in EM to a significantly greater extent than non-failing banks. Our results show that failing banks{\textquoteright} discretion over loan loss provisions ranges from aggressive (upwards EM) to conservative (downwards EM).",

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AU - El Diri, Malek

AU - King, Timothy

AU - Spokeviciute, Laima

AU - Williams, Jonathan

N1 - 18 months embargo

PY - 2021/12

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N2 - We investigate earnings management (EM) behaviour at failed banks by examining the intensity and direction of EM around FDIC-insured commercial bank failures. Our empirical analysis indicates that failing banks engage in EM to a significantly greater extent than non-failing banks. Our results show that failing banks’ discretion over loan loss provisions ranges from aggressive (upwards EM) to conservative (downwards EM).

AB - We investigate earnings management (EM) behaviour at failed banks by examining the intensity and direction of EM around FDIC-insured commercial bank failures. Our empirical analysis indicates that failing banks engage in EM to a significantly greater extent than non-failing banks. Our results show that failing banks’ discretion over loan loss provisions ranges from aggressive (upwards EM) to conservative (downwards EM).

KW - Earnings Management

KW - Bank failures

KW - Banks

U2 - 10.1016/j.econlet.2021.110098

DO - 10.1016/j.econlet.2021.110098

M3 - Article

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VL - 209

JO - Economics Letters

JF - Economics Letters

M1 - 110098

ER -

Hands in the Cookie Jar: Exploiting Loan Loss Provisions under Bank Financial Distress

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Keywords

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