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| Do China’s Commercial Banks Use Loan Loss Provision for Income Smoothing? |
| CHEN Chao, WEI Jingyi, CAO Li
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School of Management, Fudan University;
Shanghai Pudong Development Bank Co., Ltd. |
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Abstract This paper studies the determinants of loan loss provision and the behavior of income smoothing of China’s different types of commercial banks. Our results indicate We find that current loan loss provisions are positively related to the change of non-performing loans of next period and are used for income smoothing. Both city commercial banks and non-listed banks have a stronger incentive to smooth their income through loan loss provisions. Meanwhile, compared with non - listed city banks with bond issues, non-listed city banks without bond demonstrate significant income-smoothing behavior. Non-listed city commercial banks with bond issuance or more bond issues are more likely to use loan loss provision for income smoothing. In addition, the implementation of new accounting standards does not significantly affect banks’ income-smoothing behavior.
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Received: 29 October 2014
Published: 19 April 2018
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