Theme：Bank Institutions and Hidden Loan Loss: Evidence from Mandatory Shift to Expected Credit Loss Provisioning in China

Speaker: Yi Ru, School of Business, Renmin University of China

Host: Siyang Tian, School of Accounting, SWUFE

Time: 10:00-11:30 am, December 30, 2021

Place: ID: 993-164-416 (online)

Sponsor: School of Accounting, SWUFE

Introduction to the speaker:

Yi Ru, lecturer in the Department of Accounting, School of Business, Renmin University of China, PhD in accounting, School of Economics and Management, Tsinghua University, and visiting scholar of Columbia University Business School. His research interests include media independence, externality of information disclosure, bank supervision and loan decision-making. The research results have been published in Review of Accounting Studies, Population Research，Accounting Research，Journal of Finance and Economics and other journals. He has won honors such as Beijing outstanding graduate, excellent doctoral dissertation of Tsinghua University, comprehensive first-class scholarship for graduate students of Tsinghua University, etc.

Abstract:

We examine the effect of a mandatory shift to expected credit loss provisioning on banks’ loan loss recognition in China. We find that the mandatory shift increases loan loss provisions and the association between the provisions and expected credit risk among non-state-owned banks, especially those with overseas listing. In contrast, the mandatory shift has no effect on loan loss provisions among state-owned banks, and the non-compliance is driven by banks with high government subsidies or late-term governors. Additional analysis suggests that strong connections with assets management companies facilitate the non-compliance of state-owned banks. Further, the expected default risk of borrowers is similar between non-state-owned and state-owned banks, and institutional investors perceive an improvement in reporting quality only for non-state-owned banks following the mandatory shift. Overall, our results suggest that while market incentives can complement the mandatory shift to improve the informativeness of bank earnings to reflect risk, political incentives and government ownership negate the improvement and induce concealment of troubled loans.

Welcome faculty and students to attend!