Authors: Peterson K. Ozili
Addresses: Essex Business School, University of Essex, Wivenhoe Park, Colchester, UK
Abstract: This article investigates the relationship between discretionary loan loss provisions and bank intangibles among African banks. Prior studies have focused on how intangible assets affect firms' profitability and valuation decisions with almost no focus on the role of loan loss provisions. We investigate whether banks increase (decrease) loan loss provisions in response to risks associated with investment in intangible assets. We find that discretionary loan loss provisions are inversely associated with bank intangible assets and change in intangible assets, but the inverse association is weakened in environments with strong investor protection. We observe that income smoothing is reduced among banks that have large intangible asset investment. Moreover, income smoothing is pronounced among banks that have few intangible asset investments but this behaviour is reduced for banks in environments with strong minority shareholders right protection.
Keywords: banks; income smoothing; financial institutions; financial reporting; intangible assets; loan loss provisions; signalling; bank valuation; bank risk-taking; Africa.
Afro-Asian Journal of Finance and Accounting, 2019 Vol.9 No.1, pp.21 - 39
Available online: 04 Dec 2018 *Full-text access for editors Access for subscribers Free access Comment on this article