European bank loan loss provisioning and technological innovative progress

Simper, Richard; Dadoukis, Aristeidis; Cormac, Bryce B

Abstract

This paper presents an analysis of Loan Loss Provisioning (LLP) behavior of European banks across 26-member states to determine how bad management and Technological Innovative Progress (TIP) has affected bank risk management. Technological improvements in banking have seen advances in both back and front office operations with respect to lending. This is created through increased disembodied technological change capturing improvements in both non-financial and risk management technologies. We find, using a new dynamic LLP model that European banks employed bad management practices in relation to their lending and monitoring practices, leading to higher losses on loans (through increased LLPs). However, the relationship between TIP and LLPs indicates that those banks which increased their technological efficiency with respect to costs had a greater ability to recognize bad loans, and were therefore able to subsequently increase LLPs. That is, improving technology mitigated the impact of bad management practices in European banks. ABSTRACT: This paper presents an analysis of Loan Loss Provisioning (LLP) behavior of European banks

Citation

Simper, R., Dadoukis, A., & Cormac, B. B. (2019). European bank loan loss provisioning and technological innovative progress. International Review of Financial Analysis, 63, 119-130. https://doi.org/10.1016/j.irfa.2019.03.001

• Journal Article Type: Article
• Acceptance Date: Mar 4, 2019
• Online Publication Date: Mar 14, 2019
• Publication Date: 2019-05
• Deposit Date: Mar 6, 2019
• Publicly Available Date: Sep 15, 2020
• Journal: International Review of Financial Analysis
• Print ISSN: 1057-5219
• Electronic ISSN: 1873-8079
• Publisher: Elsevier
• Peer Reviewed: Peer Reviewed
• Volume: 63
• Pages: 119-130
• DOI: https://doi.org/10.1016/j.irfa.2019.03.001
• Keywords: Loan loss provision accounting; Bad management; Technological innovative progress; Earnings management; Risk management
• Public URL: https://nottingham-repository.worktribe.com/output/1613066
• Publisher URL: https://www.sciencedirect.com/science/article/pii/S1057521918307683?via%3Dihub
• Additional Information: This article is maintained by: Elsevier; Article Title: European bank loan loss provisioning and technological innovative progress; Journal Title: International Review of Financial Analysis; CrossRef DOI link to publisher maintained version: https://doi.org/10.1016/j.irfa.2019.03.001; Content Type: article; Copyright: Crown Copyright © 2019 Published by Elsevier Inc. All rights reserved.
• Contract Date: Mar 6, 2019