The effect of commercial banks' internal control weaknesses on loan loss reserves and provisions
| Autor: | Myojung Cho, Kwang-Hyun Chung |
|---|---|
| Rok vydání: | 2016 |
| Předmět: |
Finance
050208 finance business.industry Cross-collateralization education 05 social sciences Accounting 050201 accounting Internal control Participation loan Term loan Loan Order (exchange) 0502 economics and business Non-conforming loan business Non-performing loan health care economics and organizations |
| Zdroj: | Journal of Contemporary Accounting & Economics. 12:61-72 |
| ISSN: | 1815-5669 |
| DOI: | 10.1016/j.jcae.2016.02.004 |
| Popis: | This study examines whether the material internal control weaknesses (ICW) of commercial banks affect loan loss reserves and provisions. Bank regulators have been keen to improve the internal control procedures of banks in order to obtain accurate estimates of loan loss exposures. GAO, 1991 , GAO, 1994 reports that loan-loss reserves are often determined based on historical loss rates even for large loans, rather than individual loan impairment assessments, and the reported loan loss reserves include substantial amounts of supplemental reserves that are not linked to the loan loss exposure. We expect and find that banks with material ICW have, on average, higher loan loss reserves and provisions in years of ICW than those without ICW. We also find that ICW banks with successful remedial actions no longer have higher levels of loan loss reserves or provisions in the next year, while banks that report material ICW in both the current and following year continue to have significantly higher amounts of loan loss reserves and provisions in the next year. |
| Databáze: | OpenAIRE |
| Externí odkaz: |
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