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European bank loan loss provisioning and efficient technological innovative progress

Simper, R., Dadoukis, A. and Bryce, C. ORCID: 0000-0002-9856-7851 (2019). European bank loan loss provisioning and efficient technological innovative progress. Journal of Banking and Finance, 63, pp. 119-130. doi: 10.1016/j.irfa.2019.03.001

Abstract

This paper presents an analysis of Loan Loss Provisioning (LLP) behavior of European banks across 26-member states to determine how bad management and Technological Innovative Progress (TIP) has affected bank risk management. Technological improvements in banking have seen advances in both back and front office operations with respect to lending. This is created through increased disembodied technological change capturing improvements in both non-financial and risk management technologies. We find, using a new dynamic LLP model that European banks employed bad management practices in relation to their lending and monitoring practices, leading to higher losses on loans (through increased LLPs). However, the relationship between TIP and LLPs indicates that those banks which increased their technological efficiency with respect to costs had a greater ability to recognize bad loans, and were therefore able to subsequently increase LLPs. That is, improving technology mitigated the impact of bad management practices in European banks.

Publication Type: Article
Additional Information: © 2019 Elsevier. This manuscript version is made available under the CC-BY-NC-ND 4.0 license http://creativecommons.org/licenses/by-nc-nd/4.0/
Publisher Keywords: Loan loss provision accounting; Bad management; Technological innovative progress; Earnings management; Risk management.
Subjects: H Social Sciences > HG Finance
Departments: Cass Business School > Actuarial Science & Insurance
URI: http://openaccess.city.ac.uk/id/eprint/21843
[img] Text - Accepted Version
This document is not freely accessible until 14 September 2020 due to copyright restrictions.
Available under License Creative Commons Attribution Non-commercial No Derivatives.

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