Publication Type
Journal Article
Version
publishedVersion
Publication Date
3-2017
Abstract
We examine the effects of the revised Basel II rules on bank managers’ discretionary behavior, specifically income smoothing and loan loss provisioning. As the revised rules exert greater regulatory pressure on corporate than retail banking, we predict corporate bank managers to reduce risk-taking activities or increase income smoothing. Analysis of segmental reports reveals greater (less) income smoothing in the corporate banking segments of low-capital (high-capital) banks during the Basel II period, with their managers recognizing loan loss provisions in a less timely fashion. We find no such effects for retail banking. Although we document an initially negative market reaction to the regulatory announcements, that reaction weakens over time. Overall, the study highlights the unintended consequences of the banking rule changes.
Keywords
Basel Accord, Income smoothing, Loan loss provisions, Corporate banking, Retail banking
Discipline
Accounting | Corporate Finance
Research Areas
Corporate Reporting and Disclosure
Publication
China Journal of Accounting Research
Volume
10
Issue
1
First Page
9
Last Page
32
ISSN
1755-3091
Identifier
10.1016/j.cjar.2016.08.003
Publisher
Elsevier
Citation
LIM, Chu Yeong and OW YONG, Kevin.
Regulatory pressure and income smoothing by banks in response to anticipated changes to the Basel II Accord. (2017). China Journal of Accounting Research. 10, (1), 9-32.
Available at: https://ink.library.smu.edu.sg/soa_research_all/1
Copyright Owner and License
Authors
Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial-No Derivative Works 4.0 International License.
Additional URL
https://doi.org/10.1016/j.cjar.2016.08.003