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Determinants of Portuguese bank’s provisioning policies: Discretionary behaviour of generic and specific allowances
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Orientador(es)
Resumo(s)
In this paper we test for the impact of the regulatory environment on a bank’s discretionary provisioning practices. We develop a model that structures the dynamics of the provision policy for the two classes of provisions: generic provisions and specific provisions. The model is tested
using a comprehensive database of all financial institutions operating in Portugal for 1990-2000. This unique dataset comprises banks subject to the Portuguese rules as well as bank subsidiaries subject to their home-country regulation and we were able to identify distinct behaviours between them. Our results show the importance of handling he two types of provisions separately. They support the hypothesis that banks have a discretionary behaviour in setting up their provisions, and find evidence of income smoothing and capital management. We also find that the regulatory regime impacts on discretionary provisioning policies because banks when forced to increase one type of provision react by reducing the iscretionary component of the other, a finding we designated as a substitution effect.
Descrição
Palavras-chave
Banking Provision policy Income smoothing
Contexto Educativo
Citação
Journal of Money, Investment and Banking, V. 10, p. 43-56
Editora
EuroJournals Publishing