Information effects of loan portfolio quality on bank value.

by Jeff Madura , Emilio R. Zarruk
Introduction
Because commercial banks have somewhat similar asset and liability portfolios, it is not surprising that their performance levels often are related cross-sectionally. Yet in some cases loan portfolios across bank can be similar, but appear different because of accounting differences. Some banks may be more willing to recognize loss, while other prolong the inevitable. For this reason, investors may not rely exclusively on each bank's financial report to gain information about the loan portfolio. Instead they may attempt to use loan loss announcements by one or a few banks as a signal about the loan portfolio quality of others. The objective of this study is to determine whether some loan loss announcements serve as a signal. The existence of such signals is relevant not only to investors, but to credit rating agencies, bank creditors, and bank regulators.
The current objective is related somewhat to studies by Pettway (1976), Aharony and Swary (1983), Lamy and Thompson (1986), and Peavy and Hempel (1988) that test for contagion effects in the banking industry. The object of information that is assessed (loan loss reserve announcements), however, differs from the information assessed (bank failures)...




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Information effects of loan portfolio quality on bank value. 2008-07-20T19:37:00-07:00 Rating: 4.5 Diposkan Oleh: campos