Earnings management by Japanese bank managers using discretionary loan loss provisions

Wikil Kwak, Ho Young Lee, Susan W. Eldridge

Research output: Contribution to journalArticle

14 Citations (Scopus)

Abstract

This paper investigates Japanese bank managers' use of the discretionary component of loan loss provisions to manage earnings during the recession of the late 1990s. Although studies of US banks document that bank managers use loan loss provisions to smooth earnings, manage regulatory capital, and signal undervaluation, factors that may affect discretionary loan loss provisions in Japanese banks have not been empirically examined. We find that discretionary loan loss provisions for our sample of Japanese banks are positively related to the demand for external financing, realized securities gains, and prior year taxes and are negatively related to capital and pre-managed earnings.

Original languageEnglish
Pages (from-to)1-26
Number of pages26
JournalReview of Pacific Basin Financial Markets and Policies
Volume12
Issue number1
DOIs
Publication statusPublished - 2009 May 15

All Science Journal Classification (ASJC) codes

  • Finance
  • Economics and Econometrics

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