Loan Loss Provisions by Banks in Hong Kong, Malaysia and Singapore
This paper studies loan loss disclosures by banks in Hong Kong, Malaysia, and Singapore for the period 1993 through 2000. We find that unexpected loan loss provisions are positively related to bank stock returns and future cash flows. This indicates that Asian bank managers increase loan loss provisions to signal favorable cash flow prospects, and bank investors bid bank stock prices up when unexpected provisions are positive. These results are consistent with those obtained by Wahlen (1994) for US banks. We also examine the impact of the Asian financial crisis of 1997 on the loan loss variables. the results indicate that the association between the unexpected loan loss provisions and bank stock returns and future cash flows was significantly lower in the crisis years, relative to the non-crisis period. Evidently, discretionary loan loss provisions had no signaling value during the crisis. This suggests that macroeconomic uncertainty influenced the strategic behavior of Asian bank managers and investors.
Nabar, S., & Eng, L. (2007). Loan Loss Provisions by Banks in Hong Kong, Malaysia and Singapore. Journal of International Financial Management and Accounting.
The definitive version is available at https://doi.org/10.1111/j.1467-646X.2007.01006.x
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