Publication Type

Journal Article

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

Copyright Owner and License

Authors

Creative Commons License

Creative Commons Attribution-Noncommercial-No Derivative Works 4.0 License
This work is licensed under a Creative Commons Attribution-Noncommercial-No Derivative Works 4.0 License.

Additional URL

http://doi.org/10.1016/j.cjar.2016.08.003

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