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http://hdl.handle.net/10397/96597
Title: | Loan loss provisions and return predictability : a dynamic perspective | Authors: | Gao, P Lim, CY Liu, X Zeng, CC |
Issue Date: | Jun-2022 | Source: | China journal of accounting research, June 2022, v. 15, no. 2, 100224 | Abstract: | This paper examines the impact of loan loss provisions (LLPs) on return predictability during 1994–2017. We find that on average, LLPs are negatively associated with one year ahead stock returns. This effect is particularly significant during the global financial crisis but much weaker during the Basel II and III periods. Consistent with these findings, a long–short trading strategy based on LLPs generates positive abnormal returns during the Basel II and III periods but negative abnormal returns during the financial crisis. Cross-sectional tests show that this effect is more pronounced among banks with greater information asymmetry. Decomposition of LLPs suggests that these findings are driven mainly by nondiscretionary LLPs. Overall, our results suggest that the relationship between LLPs and future stock returns is not linear but contingent on bank regulations and macroeconomic conditions. | Keywords: | Financial crisis Loan loss provisions Regulation Return predictability |
Publisher: | Elsevier | Journal: | China journal of accounting research | ISSN: | 1755-3091 | EISSN: | 2214-1421 | DOI: | 10.1016/j.cjar.2022.100224 | Rights: | © 2022 Sun Yat-sen University. Production and hosting by Elsevier B.V. This is an open access article under the CC BY-NC-ND license (http://creativecommons.org/licenses/by-nc-nd/4.0/). The following publication Gao, P., Lim, C. Y., Liu, X., & Zeng, C. C. (2022). Loan loss provisions and return predictability: A dynamic perspective. China Journal of Accounting Research, 15(2), 100224 is available at https://doi.org/10.1016/j.cjar.2022.100224. |
Appears in Collections: | Journal/Magazine Article |
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