Information asymmetry,capital adequacy,and market reaction to loan loss provision announcements in the banking industry |
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| Affiliation: | 1. Seidman School of Business, Grand Valley State University, Allendale, MI 49401-9403, USA;1. Aristotle University of Thessaloniki, Department of Economic Sciences, Division of Business Administration, 54124, Thessaloniki, Greece;2. Università Cattolica del Sacro Cuore, Department SEGESTA, Via Necchi 5, 20123, Milan, Italy;3. London School of Economics, Department of Accounting, UK;4. Department of Sport Management, University of Peloponnese, Orthias Artemidos & Plataion Str., 23100, Sparta, Greece;1. Federal Reserve Bank of Richmond, 502 S. Sharp Street, Baltimore, MD 21201, United States;2. UMBC and OCC, 1000 Hilltop Circle, Baltimore, MD 21250, United States;1. Department of Economics, Management and Institutions, University of Naples “Federico II”, Via Cinthia, Monte Sant’Angelo, 80126 Napoli, NA, Italy;2. Department of Business Studies and Research, Università degli Studi di Salerno, Via Giovanni Paolo II, 132, 84084 Fisciano, SA, Italy |
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| Abstract: | This study finds significantly negative abnormal returns accompanying press announcements of loan loss provisioning in the banking industry. The negative reactions are shown to arise from both an informational asymmetry regarding asset value and the costs associated with capital adequacy regulation. It is further shown that the market reaction depends upon the type of asset being provisioned. Announcements regarding the provisioning of foreign debt are accompanied by positive market reactions, while announcements of the provisioning of real estate loans and other types of debt are accompanied by negative market reactions. |
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