The Role of Iranian Banks’ Loan Loss Provision Quality in Dealing with Banking System Crisis

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SAFARZADEH MOHAMMAD HOSEIN; Jafarimanesh Ibrahim

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Journal Paper

Paper Information

Journal: THE IRANIAN ACCOUNTING AND AUDITING REVIEW Year:2019 | Volume:26 | Issue:3 Page(s): 435-455

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Information Journal Paper

Title

The Role of Iranian Banks’ Loan Loss Provision Quality in Dealing with Banking System Crisis

Author(s)

SAFARZADEH MOHAMMAD HOSEIN | Jafarimanesh Ibrahim | Issue Writer Certificate

Keywords

Financial reporting quality

Bank stability

Risk taking

Earnings management

Loan loss provision calculating Model

Abstract

Objective The main goal of this research is to examine managerial discretion in estimating loan loss provision. We also seek to address the dispute in the literature about whether this discretion is applied for opportunistic or efficiency causes. Methods The research sample consists of 15 Iranian banks listed in the Tehran Stock Exchange during the period of 2006-2017. Panel data and logistic regressions are used in a two-step approach to answer research questions. At first, abnormal loan loss provision (ALLP) is estimated and then 3 relationships have been assessed using three distinct models. Results The results show that 1) there is a non-significant positive relationship between crisis index and ALLP; 2) there is a significant positive relationship between ALLP and bank risk-taking; and 3) there is a negative relationship between ALLP and loss avoidance behavior. Conclusion The results indicate that the current model for calculating loan loss provision (set by Central Bank of the Islamic Republic of Iran) is not effective for preventing banks from engaging in destructive behaviors. We also find that Iranian banks' managers are using their discretion in a constructive manner. Positive (negative) relationship between ALLP and risk-taking (loss avoidance) support this notion.

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APA: Copy

SAFARZADEH, MOHAMMAD HOSEIN, & Jafarimanesh, Ibrahim. (2019). The Role of Iranian Banks’ Loan Loss Provision Quality in Dealing with Banking System Crisis. THE IRANIAN ACCOUNTING AND AUDITING REVIEW, 26(3 ), 435-455. SID. https://sid.ir/paper/728203/en

Vancouver: Copy

SAFARZADEH MOHAMMAD HOSEIN, Jafarimanesh Ibrahim. The Role of Iranian Banks’ Loan Loss Provision Quality in Dealing with Banking System Crisis. THE IRANIAN ACCOUNTING AND AUDITING REVIEW[Internet]. 2019;26(3 ):435-455. Available from: https://sid.ir/paper/728203/en

IEEE: Copy

MOHAMMAD HOSEIN SAFARZADEH, and Ibrahim Jafarimanesh, “The Role of Iranian Banks’ Loan Loss Provision Quality in Dealing with Banking System Crisis,” THE IRANIAN ACCOUNTING AND AUDITING REVIEW, vol. 26, no. 3 , pp. 435–455, 2019, [Online]. Available: https://sid.ir/paper/728203/en

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