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In this study, we investigate the tail dependency between bank stocks in China and 35 common risk factors. We measure univariate and multivariate conditional tail risk probabilities. The evidence indicates that tail events from risk factors in the banking, security trading, real estate, and energy industries have the largest effects on the realization of extreme returns from Chinese bank stocks. The univariate conditional tail risk is considerably higher than the unconditional tail risk. The impact of multiple tail events from several risk factors occurring simultaneously is much stronger than tail events from one single risk factor. In general, there is a stronger cross‐market tail linkage between emerging market risk factors and bank stocks in China when compared with developed market risk factors. However, the cross‐market tail linkage between developed market risk factors and bank stocks in China rose sharply during the 2008 financial crisis. [ABSTRACT FROM AUTHOR]

Through their procyclical behavior, loan loss provisions have been determined as one of the factors that contribute to financial instability during a crisis. IFRS 9 was introduced in 2018 with an expected credit loss model replacing the incurred loss model of IAS 39 to mitigate the effect in the future. Our study aims to analyze loan loss provisions of major banks in the Eurozone to determine for the first time if the implementation of IFRS 9, as intended by regulators, has a dampening effect on procyclicality, especially during the stressed situation under COVID‐19. We analyze 51 banks from 12 countries of the European Monetary Union using 2856 firm‐year observations. While no robust evidence of less procyclicality can be found after the implementation of IFRS 9 until the pandemic, we find evidence that loan loss provisions moved countercyclical during 2020, indicating an alleviating effect at the beginning of the exogenous shock. [ABSTRACT FROM AUTHOR]

This paper investigates whether former auditors on the audit committee constrain earnings management through loan loss provisions. Based on an analysis of the annual reports of 82 African listed banks over the period 2011–2016, findings show that the presence of former auditors on an audit committee is associated with lower earnings management. This result suggests that audit committee members with auditing expertise and background contribute to effective monitoring of management's accounting practices. Furthermore, results reveal that the reducing effect on earnings management of former auditors is strongest for directors who are unaffiliated with the bank's current external auditor. [ABSTRACT FROM AUTHOR]

The purpose of this paper is to analyze empirically the behavior of expected loan loss provisions during the economic cycle. The provisioning rules under IFRS 9 require the creation of reserves to cover expected credit losses, were anticipated to act countercyclically, and thus replaced the rules under IAS 39, which are widely presumed to have a procyclical impact. Observing the dynamics of the economic cycle during the economic downturn resulting from the COVID restrictions, a panel regression was performed to test the hypothesis that loan loss provisioning rules under IFRS 9 have a procyclical impact. The hypothesis was not rejected on the basis of a sample of the member countries of the European Union for the period of 1Q 2015 – 3Q 2020. Since the conclusions about procyclicality of loan loss provisions under IFRS 9 might be sensitive to the choice of models applied by the banks or to the assumptions applied to forward‐looking information used in the models, there are certain areas that supervisory and regulatory authorities might look into to increase the quality of ECL models and their predictive power and help to eliminate potential triggers of procyclicality. [ABSTRACT FROM AUTHOR]

The current study proposes a new three‐stage network data envelopment analysis (DEA) model to estimate three different types of efficiencies. More specifically, the input efficiency is estimated in the first stage, followed by the evaluation of stability efficiency in the second stage, and finally, the output efficiency is derived from the final stage. In particular, we consider market power in deposits and market power in loans in the banking production process. Rather than using non‐performing loans as an undesirable output, this paper innovatively uses loan loss provisions in bank production. We argue that the loan loss provisions are helpful to improve bank stability because they provide a cushion to absorb unexpected losses, therefore we treat it as a good intermediate output in the second stage and a good intermediate input in the third stage. The results exhibit that the scores of stability inefficiency are the highest, followed by output inefficiency, while Chinese commercial banks have the lowest level of input inefficiency. Not only did we observe that the Chinese banking industry has the highest level of stability inefficiency, but we also noticed that the stability inefficiency had the strongest volatility during 2007–2017. We also explore the impact of non‐performing loan ratios from three different geographical areas on bank efficiency in China in a second‐phase regression analysis, the results of which show that the input inefficiency results from higher levels of financial risk from the central area in China, while the western area in China has the opposite sign. [ABSTRACT FROM AUTHOR]

The European Commission, citing deficiencies in the financial statements of banks during the financial crisis, has questioned the independence of the auditors of European banks at the onset of the crisis. We test for evidence of impaired auditor independence by examining if the economic bond between auditors and clients is associated with the audit quality of banks, controlling for the strength of banking regulation of the country in which a bank operates. We find no evidence of income‐increasing loan loss provisions being positively associated with the auditor–client economic bond. There is no indication that auditor independence is impaired in EU banks. Stronger country regulation is associated with more conservative provisioning before and after the formation of the European Banking Authority. We also find that the strength of banking regulation mitigates any tendency of auditors' independence to be compromised by the auditor–client economic bond. [ABSTRACT FROM AUTHOR]

This paper examines the implications of mandatory IFRS adoption on the accounting quality of banks in twelve EU countries. Specifically, we analyse how the change in the recognition and measurement of banks' main operating accrual item, the loan loss provision, affects income smoothing behaviour and timely loss recognition. We find that the restriction to recognise only incurred losses under IAS 39 significantly reduces income smoothing. This effect is less pronounced in countries with stricter bank supervision, widely dispersed bank ownership and for EU banks cross-listed in the US. This provides additional evidence that institutions matter in shaping financial reporting outcomes. Further, the application of the incurred loss approach results in less timely loan loss recognition implying delayed recognition of future expected losses. In the light of the ongoing financial crisis it is questionable whether this is a desirable financial reporting outcome of mandatory IFRS adoption. [ABSTRACT FROM AUTHOR]