The Credit-Risk Relevance of Loan Impairments Under IFRS 9 for CDS Pricing: Early Evidence

References

• Abad, J., & Suarez, J. (2018). The procyclicality of expected credit loss provisions. CEPR Discussion Paper No. DP13135. https://ssrn.com/abstract=3244507
   Google Scholar
• Accountancy Europe. (2018). Auditor reporting of key audit matters in the European banking sector (September 2018). https://www.accountancyeurope.eu/wp-content/uploads/Accountancy_Europe_KAMs_2018.pdf
   Google Scholar
• Acharya, V. V., Drechsler, I., & Schnabl, P. (2014). A pyrrhic victory? Bank bailouts and sovereign credit risk. The Journal of Finance, 69(6), 2689–2739. https://doi.org/https://doi.org/10.1111/jofi.12206
   Web of Science ®Google Scholar
• Acharya, V. V., & Johnson, T. (2007). Insider trading in credit derivatives. Journal of Financial Economics, 84(1), 110–141. https://doi.org/https://doi.org/10.1016/j.jfineco.2006.05.003
   Web of Science ®Google Scholar
• Ahmed, A. S., Takeda, C., & Thomas, S. (1999). Bank loan loss provisions: A reexamination of capital management, earnings management and signaling effects. Journal of Accounting and Economics, 28(1), 1–25. https://doi.org/https://doi.org/10.1016/S0165-4101(99)00017-8
   Web of Science ®Google Scholar
• Arnaboldi, F., Casu, B., Kalotychou, E., & Sarkisyan, A. (2020). The performance effects of board heterogeneity: What works for EU banks? The European Journal of Finance, 26(10), 897–924. https://doi.org/https://doi.org/10.1080/1351847X.2018.1479719
   Web of Science ®Google Scholar
• Arora, N., Richardson, S., & Tuna, İ. (2014). Asset reliability and security prices: Evidence from credit markets. Review of Accounting Studies, 19(1), 363–395. https://doi.org/https://doi.org/10.1007/s11142-013-9254-7
   Web of Science ®Google Scholar
• Augustin, P. (2018). The term structure of CDS spreads and sovereign credit risk. Journal of Monetary Economics, 96(June 2018), 53–76. https://doi.org/https://doi.org/10.1016/j.jmoneco.2018.04.001
   Google Scholar
• Barth, M. E., Landsman, W. R., & Lang, M. H. (2008). International accounting standards and accounting quality. Journal of Accounting Research, 46(3), 467–498. https://doi.org/https://doi.org/10.1111/j.1475-679X.2008.00287.x
   Web of Science ®Google Scholar
• Basel Committee on Banking Supervision. (2017). Regulatory treatment of accounting provisions – interim approach and transitional arrangements (March 2017). https://www.bis.org/bcbs/publ/d401.htm
   Google Scholar
• Beatty, A., & Liao, S. (2014). Financial accounting in the banking industry: A review of the empirical literature. Journal of Accounting and Economics, 58(2–3), 339–383. https://doi.org/https://doi.org/10.1016/j.jacceco.2014.08.009
   Web of Science ®Google Scholar
• Beatty, A., & Liao, S. (2021). What do analysts’ provision forecasts tell Us about expected credit loss recognition? The Accounting Review, 96(1), 1–21. https://doi.org/https://doi.org/10.2308/TAR-2018-0049
   Web of Science ®Google Scholar
• Bhat, G., Callen, J. L., & Segal, D. (2016). Testing the transparency implications of mandatory IFRS adoption: The spread/maturity relation of credit default swaps. Management Science, 62(12), 3472–3493. https://doi.org/https://doi.org/10.1287/mnsc.2015.2318
   Web of Science ®Google Scholar
• Bikker, J. A., & Metzemakers, P. A. J. (2005). Bank provisioning behaviour and procyclicality. Journal of International Financial Markets, Institutions and Money, 15(2), 141–157. https://doi.org/https://doi.org/10.1016/j.intfin.2004.03.004
   Google Scholar
• Bischof, J., & Daske, H. (2016). Interpreting the European Union’s IFRS endorsement criteria: The case of IFRS 9. Accounting in Europe, 13(2), 129–168. https://doi.org/https://doi.org/10.1080/17449480.2016.1210181
   Web of Science ®Google Scholar
• Bowen, R. M., Chen, X., & Cheng, Q. (2008). Analyst coverage and the cost of raising equity capital: Evidence from underpricing of seasoned equity offerings. Contemporary Accounting Research, 25(3), 657–700. https://doi.org/https://doi.org/10.1506/car.25.3.1
   Web of Science ®Google Scholar
• Bushman, R. M. (2016). Transparency, accounting discretion and bank stability. Economic Policy Review, 22(1), 129–149. https://ssrn.com/abstract=2828078
   Google Scholar
• Bushman, R. M., & Williams, C. D. (2012). Accounting discretion, loan loss provisioning, and discipline of banks’ risk-taking. Journal of Accounting and Economics, 54(1), 1–18. https://doi.org/https://doi.org/10.1016/j.jacceco.2012.04.002
   Web of Science ®Google Scholar
• Bushman, R. M., & Williams, C. D. (2015). Delayed expected loss recognition and the risk profile of banks. Journal of Accounting Research, 53(3), 511–553. https://doi.org/https://doi.org/10.1111/1475-679X.12079
   Web of Science ®Google Scholar
• Callen, J. L., Livnat, J., & Segal, D. (2009). The impact of earnings on the pricing of credit default swaps. The Accounting Review, 84(5), 1363–1394. https://doi.org/https://doi.org/10.2308/accr.2009.84.5.1363
   Web of Science ®Google Scholar
• Chiu, T., Guan, Y., & Kim, J. (2018). The effect of risk factor disclosures on the pricing of credit default swaps. Contemporary Accounting Research, 35(4), 2191–2224. https://doi.org/https://doi.org/10.1111/1911-3846.12362
   Web of Science ®Google Scholar
• Cornett, M. M., McNutt, J. J., & Tehranian, H. (2009). Corporate governance and earnings management at large U. S. Bank Holding Companies. Journal of Corporate Finance, 15(4), 412–430. https://doi.org/https://doi.org/10.1016/j.jcorpfin.2009.04.003
   Web of Science ®Google Scholar
• Costello, A. M., Granja, J., & Weber, J. (2019). Do strict regulators increase the transparency of banks? Journal of Accounting Research, 57(3), 603–637. https://doi.org/https://doi.org/10.1111/1475-679X.12255
   Web of Science ®Google Scholar
• Daske, H., Hail, L., Leuz, C., & Verdi, R. (2008). Mandatory IFRS reporting around the world: Early evidence on the economic consequences. Journal of Accounting Research, 46(5), 1085–1142. https://doi.org/https://doi.org/10.1111/j.1475-679X.2008.00306.x.
   Web of Science ®Google Scholar
• De Franco, G., Vasvari, F. P., & Wittenberg-Moerman, R. (2009). The informational role of bond analysts. Journal of Accounting Research, 47(5), 1201–1248. https://doi.org/https://doi.org/10.1111/j.1475-679X.2009.00348.x
   Web of Science ®Google Scholar
• Dong, M., & Oberson, R. (2021). Moving toward the expected credit loss model under IFRS 9: Capital transitional arrangement and bank systematic risk. Accounting and Business Research, Forthcoming. https://doi.org/https://doi.org/10.1080/00014788.2021.1952060.
   Web of Science ®Google Scholar
• Donoher, W. J., Reed, R., & Storrud-Barnes, S. F. (2007). Incentive alignment, control, and the issue of misleading financial disclosures. Journal of Management, 33(4), 547–569. https://doi.org/https://doi.org/10.1177/0149206307302550
   Web of Science ®Google Scholar
• Donovan, J., Frankel, R. M., & Martin, X. (2015). Accounting conservatism and creditor recovery rate. The Accounting Review, 90(6), 2267–2303. https://doi.org/https://doi.org/10.2308/accr-51045
   Web of Science ®Google Scholar
• Doshi, H., Jacobs, K., & Zurita, V. (2017). Economic and financial determinants of credit risk premiums in the sovereign CDS market. The Review of Asset Pricing Studies, 7(1), 43–80. https://doi.org/https://doi.org/10.1093/rapstu/rax009
   Web of Science ®Google Scholar
• Duffie, D., & Lando, D. (2001). Term structures of credit spreads with incomplete accounting information. Econometrica, 69(3), 633–664. https://doi.org/https://doi.org/10.1111/1468-0262.00208
   Web of Science ®Google Scholar
• Eichler, S. (2014). The political determinants of sovereign bond yield spreads. Journal of International Money and Finance, 46(September 2014), 82–103. https://doi.org/https://doi.org/10.1016/j.jimonfin.2014.04.003
   Google Scholar
• Ertan, A. (2019). Expected losses, unexpected costs? SSRN Scholarly Paper ID 3504708. Rochester, NY: Social Science Research Network. https://doi.org/https://doi.org/10.2139/ssrn.3504708.
   Google Scholar
• European Central Bank. (2017). SSM thematic review on IFRS 9 (November 2017). https://www.bankingsupervision.europa.eu/press/letterstobanks/shared/pdf/2017/ssm.reportlsi_2017.en.pdf
   Google Scholar
• Financial Stability Forum. (2009). Addressing procyclicality in the financial system (April 2009). www.fsb.org/wp-content/uploads/r_0904a.pdf
   Google Scholar
• Florou, A., Kosi, U., & Pope, P. F. (2017). Are international accounting standards more credit relevant than domestic standards? Accounting and Business Research, 47(1), 1–29. https://doi.org/https://doi.org/10.1080/00014788.2016.1224968
   Web of Science ®Google Scholar
• Gaffney, E., & Mccann, F. (2019). The cyclicality in SICR: Mortgage modelling under IFRS 9. European Systemic Risk Board (Working Paper Series), May(92), 1–26. https://doi.org/https://doi.org/10.20955/r.85.67.
   Google Scholar
• Gebhardt, G. (2016). Impairments of Greek government bonds under IAS 39 and IFRS 9: A case study. Accounting in Europe, 13(2), 169–196. https://doi.org/https://doi.org/10.1080/17449480.2016.1208833
   Web of Science ®Google Scholar
• Giner, B., & Mora, A. (2019). Bank loan loss accounting and its contracting effects: The new expected loss models. Accounting and Business Research, 49(6), 726–752. https://doi.org/https://doi.org/10.1080/00014788.2019.1609898
   Web of Science ®Google Scholar
• Griffin, P. A., & Cahan, S. (2014). The market for credit default swaps: New insights into investors’ use of accounting information? Accounting & Finance, 54(3), 847–883. https://doi.org/https://doi.org/10.1111/acfi.12092
   Web of Science ®Google Scholar
• Gruenberger, D. (2012). A rating migration model for loan loss provisions and credit cycles. SSRN Scholarly Paper ID 2187515. Social Science Research Network. https://doi.org/https://doi.org/10.2139/ssrn.2187515.
   Google Scholar
• Gündüz, Y., & Kaya, O. (2014). Impacts of the financial crisis on eurozone sovereign CDS spreads. Journal of International Money and Finance, 49(Part B), 425–442. https://doi.org/https://doi.org/10.1016/j.jimonfin.2014.03.013
   Web of Science ®Google Scholar
• Han, B., & Zhou, Y. (2015). Understanding the term structure of credit default swap spreads. Journal of Empirical Finance, 31(March 2015), 18–35. https://doi.org/https://doi.org/10.1016/j.jempfin.2015.02.002
   Google Scholar
• Hasan, I., Liu, L., & Zhang, G. (2016). The determinants of global bank credit-default-swap spreads. Journal of Financial Services Research, 50(3), 275–309. https://doi.org/https://doi.org/10.1007/s10693-015-0232-z
   Web of Science ®Google Scholar
• Hashim, N., Li, W., & O’Hanlon, J. (2016). Expected-loss-based accounting for impairment of financial instruments: The FASB and IASB proposals 2009–2016. Accounting in Europe, 13(2), 229–267. https://doi.org/https://doi.org/10.1080/17449480.2016.1210179
   Web of Science ®Google Scholar
• Huang, S., & Hilary, G. (2018). Zombie board: Board tenure and firm performance. Journal of Accounting Research, 56(4), 1285–1329. https://doi.org/https://doi.org/10.1111/1475-679X.12209
   Web of Science ®Google Scholar
• Jeanneret, A. (2018). Sovereign credit spreads under good/bad governance. Journal of Banking & Finance, 93(August 2018), 230–246. https://doi.org/https://doi.org/10.1016/j.jbankfin.2018.04.005
   Google Scholar
• Kanagaretnam, K., Zhang, G., & Zhang, S. B. (2016). CDS pricing and accounting disclosures: Evidence from U.S. Bank holding corporations around the recent financial crisis. Journal of Financial Stability, 22(February 2016), 33–44. https://doi.org/https://doi.org/10.1016/j.jfs.2015.11.001
   Google Scholar
• Kim, J.-B., Ng, J., Wang, C., Wu, F., & Harry (2021). The effect of the shift to an expected credit loss model on loan loss recognition timeliness. SSRN ID 3490600. SSRN Scholarly Paper ID 3490600. Social Science Research Network. https://doi.org/https://doi.org/10.2139/ssrn.3490600.
   Google Scholar
• Kraft, P., Landsman, W. R., & Shan, Z. (2021). Effect of mandatory IFRS adoption on accounting-based prediction models for CDS spreads. European Accounting Review, 30(2), 223–250. https://doi.org/https://doi.org/10.1080/09638180.2020.1760116
   Web of Science ®Google Scholar
• Laeven, L., & Majnoni, G. (2003). Loan loss provisioning and economic slowdowns: Too much, too late? Journal of Financial Intermediation, 12(2), 178–197. https://doi.org/https://doi.org/10.1016/S1042-9573(03)00016-0
   Web of Science ®Google Scholar
• Leventis, S., Dimitropoulos, P. E., & Anandarajan, A. (2011). Loan loss provisions, earnings management and capital management under IFRS: The case of EU commercial banks. Journal of Financial Services Research, 40(1), 103–122. https://doi.org/https://doi.org/10.1007/s10693-010-0096-1
   Web of Science ®Google Scholar
• Lewbel, A. (2012). Using heteroscedasticity to identify and estimate mismeasured and endogenous regressor models. Journal of Business and Economic Statistics, 30(1), 67–80. https://doi.org/https://doi.org/10.1080/07350015.2012.643126
   Web of Science ®Google Scholar
• Liu, Y., & Jiraporn, P. (2010). The effect of CEO power on bond ratings and yields. Journal of Empirical Finance, 17(4), 744–762. https://doi.org/https://doi.org/10.1016/j.jempfin.2010.03.003
   Web of Science ®Google Scholar
• Longstaff, F. A., Pan, J., Pedersen, L. H., & Singleton, K. J. (2011). How sovereign is sovereign credit risk? American Economic Journal: Macroeconomics, 3(2), 75–103. https://doi.org/https://doi.org/10.1257/mac.3.2.75
   Web of Science ®Google Scholar
• López-Espinosa, G., Ormazabal, G., & Sakasai, Y. (2021). Switching from incurred to expected loan loss provisioning: Early evidence. Journal of Accounting Research, 59(3), 757–804. https://doi.org/https://doi.org/10.1111/1475-679X.12354
   Web of Science ®Google Scholar
• Mayordomo, S., Peña, J. I., & Schwartz, E. S. (2014). Are all credit default swap databases equal? European Financial Management, 20(4), 677–713. https://doi.org/https://doi.org/10.1111/j.1468-036X.2013.12023.x
   Web of Science ®Google Scholar
• Merton, R. C. (1974). On the pricing of corporate debt: The risk structure of interest rates. The Journal of Finance, 29(2), 449–470. https://doi.org/https://doi.org/10.1111/j.1540-6261.1974.tb03058.x
   Web of Science ®Google Scholar
• Nickell, S. (1981). Biases in dynamic models with fixed effects. Econometrica, 49(6), 1417. https://doi.org/https://doi.org/10.2307/1911408
   Web of Science ®Google Scholar
• Novotny-Farkas, Z. (2016). The interaction of the IFRS 9 expected loss approach with supervisory rules and implications for financial stability. Accounting in Europe, 13(2), 197–227. https://doi.org/https://doi.org/10.1080/17449480.2016.1210180
   Web of Science ®Google Scholar
• Ryan, S. G. (2011). Financial reporting for financial instruments. Foundations and Trends® in Accounting, 6(3–4), 187–354. https://doi.org/https://doi.org/10.1561/1400000021
   Google Scholar
• S&P. (2017). IFRS 9 regional insights – 2017 EMEA market survey (September 2017). S&P Global Market Intelligence. https://www.spglobal.com/marketintelligence/en/documents/mi-research-ifrs-9-regional-insights-emea-market-survey-2017.pdf
   Google Scholar
• Shivakumar, L., Urcan, O., Vasvari, F. P., & Zhang, L. (2011). The debt market relevance of management earnings forecasts: Evidence from before and during the credit crisis. Review of Accounting Studies, 16(3), 464–486. https://doi.org/https://doi.org/10.1007/s11142-011-9155-6
   Web of Science ®Google Scholar
• Song, C. J., Thomas, W. B., & Yi, H. (2010). Value relevance of FAS No. 157 fair value hierarchy information and the impact of corporate governance mechanisms. The Accounting Review, 85(4), 1375–1410. https://doi.org/https://doi.org/10.2308/accr.2010.85.4.1375
   Web of Science ®Google Scholar
• Vyas, D. (2011). The timeliness of accounting write-downs by U.S. Financial institutions during the financial crisis of 2007-2008. Journal of Accounting Research, 49(3), 823–860. https://doi.org/https://doi.org/10.1111/j.1475-679X.2011.00410.x
   Web of Science ®Google Scholar