Credit information sharing and loan loss recognition

Balakrishnan, K and Ertan, A (2021) Credit information sharing and loan loss recognition. Accounting Review, 96 (4). pp. 27-50. ISSN 0001-4826 OPEN ACCESS

Abstract

Does enhancing banks’ information sets and understanding of credit risks improve loan loss recognition? We study this question using a global dataset of staggered initiations and coverage increases of public credit registries (PCRs). Mandated by national regulators, PCRs collect borrower and loan information from lenders and share it with the banks in the financial system. This setting represents a significant improvement in banks’ assessment of loss events. We find that PCR initiations and coverage reforms enhance the timeliness of banks’ loan loss recognition—the extent to which loan loss provisions capture subsequent nonperforming loans. The effects are greater when PCRs distribute more information and are not driven by changes in borrower quality or supervisory stringency. Overall, these inferences are consistent with improvements in banks’ information sets leading to better provisioning decisions.

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Item Type: Article
Subject Areas: Accounting
Additional Information:

© 2020 The Authors.

Date Deposited: 05 Nov 2020 14:50
Date of first compliant deposit: 04 Nov 2020
Subjects: B > Banks
C > Credit management
L > Learning
Last Modified: 29 Jul 2021 08:23
URI: https://lbsresearch.london.edu/id/eprint/1539
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