Does the Loan Loss Reserve of US Commercial Banks Contain Information for Corporate Bonds Market Default Risk?

Abstract

This study examines 215 commercial banks in U S during the period of 2009Q1-2012Q2 This study uses dynamic panel data regression models and time series models to analyze the influence of bond market default risk information on loan market This study finds that the loan loss provision is negatively impacted by earnings before tax and provision but positively impacted by spread in the high yield corporate bond market Moreover this study finds non-performing loans and net charge-offs of large banks are positively related to changes in spreads in the high yield corporate bond market Our major findings are as follows: (1) there is no evidence of earnings management via the loan loss provision/loan loss reserve (2) As it turns out large banks executives recognize loan loss provision/loan loss reserve based on default risk of bond market but not for small banks

Date of Award	2014 Jul 3
Original language	English
Supervisor	Tse-Shih Wang (Supervisor)