Publication Type
Conference Paper
Publication Date
4-2013
Abstract
This paper examines if the market rationally prices the loan loss provisions, and the fair value gains and losses of US banks. We also model the discretionary components of loan loss provisions and fair value gains and losses, and test if the discretionary components are priced differently from their non-discretionary counterparts. We find little evidence that the market misprices operating cash flows, non-discretionary loan loss provisions, or fair value gains and losses (discretionary or otherwise). However we do find evidence of significant mispricing of discretionary loan loss provisions. This evidence remains significant even after controlling for the fact that loan loss provisions are correlated with bank risk.
Keywords
Accruals, Discretionary loan provisions, Fair value gains and losses, Market efficiency
Discipline
Accounting
Research Areas
Financial Performance Analysis
Publication
Marie Curie ITN Final Conference on Financial Risk Management & Risk Reporting, 11-12 April 2013
First Page
1
Last Page
50
Publisher
Marie Curie ITN Final Conference on Financial Risk Management & Risk Reporting, 11-12 April 2013
City or Country
University of Konstanz, Germany
Citation
Lim, Chu Yeong, Edward Lee, and Martin Walker. 2013. "Are the Loan Loss and Fair Value Components of Bank Income Rationally Priced?" Paper presented at Marie Curie ITN Final Conference on Financial Risk Management & Risk Reporting, University of Konstanz, Germany, April 11-12.
Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial-No Derivative Works 4.0 International License.