Several studies have addressed, with conflicting results, the issue of procyclical effects of loan loss provisions in the past. More recently, the weak performance of incurred loss models in the financial crisis has given rise to a new debate on the sound design of credit risk provisioning...

The paper investigates the role of CEO risk incentives in increasing the riskiness of securitization transactions in the financial industry. Using a sample of US financial institutions, and a system model to account for the endogeneity problem between risk incentives and securitization, we...

We develop a partial equilibrium model to assess how backward-looking provisioning, loan loss provisioning and expected credit losses determine the temporal pattern of recognition of credit losses and the optimal credit spreads for banks. We apply our model to a dataset covering the Spanish...

Bank regulators and academics have long conjectured the beneficial effects of smoothing in loan loss provisions (i.e., making higher provisions during good times so as to avoid doing so during bad times) for bank lending and stability, while accounting regulators express concerns about its...

This paper examines regulators' optimal design for banks' expected credit loss impairment rules. Recognizing expected credit losses imposes market discipline and thus sound risk-taking ex ante (social gain) while it potentially distorts the bank's socially desirable liquidity provision ex...

The loan impairment rules recently introduced by IFRS 9 require banks to estimate their future credit losses by using forward-looking information. We use supervisory loan-level data from Germany to investigate how banks apply their reporting discretion and adjust their lending upon the...

This paper evaluates several methods which can possibly be used to minimize the pro-cyclical impact of accounting rules on bank capital regulation. Improving accounting rules cannot eliminate the pro-cyclicality problem as the recently proposed expected credit loss impairment model for...

The loan impairment rules recently introduced by IFRS 9 require banks to estimate their future credit losses by using forward-looking information. We use supervisory loan-level data from Germany to investigate how banks apply their reporting discretion and adjust their lending upon the...

We argue that the impact of capital gains taxation on asset pricing depends on the tax awareness of market participants. While institutional investors should be generally well-informed about tax regulations, private investors have only limited tax knowledge and resources. As a result, market...

To answer the question what causes an asset to be illiquid, we analyze the impact that transparency of corporate accounting information has on the liquidity of its traded bonds. In particular, we focus on how this relationship depends on aggregate liquidity and the financial state of the firm....