Bank loan-loss provisions and the income-smoothing hypothesis: An empirical analysis, 1976–1984

This article tests an income-smoothing hypothesis for a sample of 106 large bank holding companies for the period 1976 to 1984. Our focus is on the behavior of the provision for loan losses as a function of bank income and alternative measures of business conditions likely to affect loan portfolio risk-taking or quality. Using an econometric model with pooled time-series, cross-sectional data, we find evidence of income-smoothing behavior over our test period. Our dummy-variable models indicate that regional banking companies tend to engage in income smoothing more than money-center banks. Alternative motivations for income-smoothing behavior, which include bank regulatory policy, risk management, agency theory, and compensation policy, are explored and their policy implications considered.     

Trading Prior to the Disclosure of Material Information: Evidence from Regulation Fair Disclosure Form 8‐Ks*

Regulation Fair Disclosure (Reg FD) Form 8‐K filings provide a venue where managers release information to the market as a whole that they designate as being material. Using this setting, we study trading patterns immediately prior to the public disclosure of material information. We offer three main results. First, using both intraday and daily trading data, we find abnormal trading volume of 21 percent (13 percent) in the hour (day) prior to the public disclosure, respectively. Second, we find that this pre‐disclosure abnormal trading volume is concentrated in firms that are smaller, have more growth opportunities, issue fewer voluntary disclosures, and have weaker external monitoring. Finally, we find that this pre‐disclosure volume is concentrated in subsamples in which the information relates to a firm's material contracts, a firm holds investor/analyst conferences, and there is insider trading activity in a firm's shares. Our results do not concentrate in a small number of firms or industries, and do not appear to be explained by the form through which managers first release the material information (e.g., Form 8‐K, press release, website posting, or social media). Our results are also robust to controlling for the firm's other filings and peer filings that occur around the disclosure. Overall, the trading patterns we document may show that, inconsistent with the spirit of Reg FD, a subset of investors trade on information managers deem material prior to its broad, public release.     

Exploration of the Dimensionality of the Consumer Ethnocentric Tendencies Scale in Mozambique

The objective of the study is to validate the Consumer Ethnocentric Tendencies (CET) scale in Mozambique and to explore its dimensionality. The study was carried out using a questionnaire-based survey to collect data from 273 respondents in Mozambique. A back-translation technique was applied in combination with a pilot study to verify the quality of the instrument in the Portuguese language. The study results showed that Mozambican consumers surveyed were moderately ethnocentric and that the CET scale demonstrated a four-dimensional structure.     

Fiscal Sustainability in the EU

We assessed the sustainability of fiscal policy in the 28 European Union countries over the 1980-2015 years. Panel unit root tests in the presence of cross-sectional dependence showed that government revenues, expenditures, the primary balance, and debt were non-stationary series. However, cointegration tests reveled that a long-run relationship exists between government revenues and expenditures as well as between government primary deficit and debt. The results of causality tests were in line with the neutrality hypothesis: government revenues do not cause the expenditures, and vice versa. Furthermore, mixture models analyses indicated the presence of three homogeneous clusters, one of which included Portugal, Ireland, Italy, Greece, and Spain (PIIGS), whose coefficient of 0.68 indicates the absence of sustainability, since government expenditures grow faster than revenues.     

Brokerage trading volume and analysts’ earnings forecasts: a conflict of interest?

Review of Accounting Studies - Using unique new data, we examine whether brokerage trading volume creates a conflict of interest for analysts. We find that earnings forecast optimism is associated...