| Summary: | 碩士 === 國立臺北大學 === 會計學系 === 93 === Abstract
This study investigates the intension of loan loss provisions for financial holding subsidiary banks. In bank industry, the loan loss provision decisions can partially reflect the default risk of loans, besides that, some are regarded as the instrument for manipulation.. During the research, Wahlen(1994)’s estimating model is used to separate loan loss provisions into non-discretionary and discretionary components. After that, in terms of variance analysis, we examine the non-discretionary component of loan loss provisions with t-test for verifying whether the improvement of loan quality exists after banks join financial holding companies. Finally, in order to verify whether capital management, earning management and signaling incentive found in previous accounting studies also exists in financial holding subsidiary banks, we examine the discretionary component of loan loss provisions through the use of regression analysis.
Through the result of this empirical study, we obtain several conclusions. First of all, compared with independent banks, the level of non-discretionary loan loss provision decreases. This result reveals that the loan quality improves after banks join financial holding companies. Second, when the risk-based capital adequacy ratio is close to the regulatory minimum and therefore it results in the raising regulatory costs, management of the financial holding subsidiary banks will reduce the level of discretionary loan loss provision by contrast. Third, once management of the financial holding subsidiary banks encounters unfavorable financial performance, in terms of ‘big bath’, additional discretionary loan loss provision will be taken to further decrease current earnings, consequently operating performance in subsequent years will increase with a false impression. Finally, if management of the financial holding subsidiary banks believes that future cash flows are favorable but the market is unable to find out since the existence of ‘information asymmetry’, they will communicate the good news to the market by increasing the level of discretionary loan loss provisions.
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