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| Author: | Beatty, A. Liao, S. |
| Title: | Do delays in expected loss recognition affect banks' willingness to lend? |
| Journal: | Journal of Accounting & Economics
2011 : JUN, VOL. 52:1, p. 1-20 |
| Index terms: | banking capital flows loans loss recession finance |
| Language: | eng |
| Abstract: | Banks can facilitate their future capital inadequacy concerns by diminishing lending. The capital crunch theory suggests that lending is particularly sensitive to regulatory capital constraints in times of recession, when regulatory capital declines and external-financing troubles increase. Regulators and policy makers argue the current loan loss provisioning rules magnifying this pro-cyclicality. Exploiting delay variation in expected loss recognition under the current incurred loss model, we find that banks which delay less experience less reductions in lending during recessionary relative to expansionary periods. It is also found that smaller delays reduce the recessionary capital crunch influence. The results stay the same across management quality partitions. |
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