Loan loss reporting,early disclosure,and investor reactions

Several prior studies present evidence that bank loan-loss announcements have a significant impact on shareholder wealth. There is no satisfactory explanation, however, as to why these announcements should change share prices. This paper examines loan-loss announcements in the context of the early disclosure literature. We find banks that publicly announce losses before releasing their quarterly earnings report have a significant increase in shareholder wealth following the loan-loss announcement. Banks that choose to publicly announce loan-loss increases with the release of quarterly-earnings report experience a significant decrease in shareholder wealth prior to the loan-loss announcement. Our results support the notion that the timing of the loan-loss announcement provides information to investors.