Loan Loss Reserves and Income Smoothing：The Experience of Commercial Banking Industry in Taiwan

• Main Authors: Cheng-Chieh Chang, 張正杰
• Other Authors: Chung-Cheng Lee
• Format: Others
• Language: zh-TW
• Published: 2005
• Online Access: http://ndltd.ncl.edu.tw/handle/72030774511905739101

碩士 === 朝陽科技大學 === 企業管理系碩士班 === 93 === This thesis examines empirically whether the top management of domestic commercial banks are engaged in income smoothing behavior through the manipulation of loan loss reserves. Taking into account the characteristics of domestic commercial banks and the surrounding political and economic environments, the thesis establishes three research objectives to be followed by empirical analysis accordingly. With a focus on discretionary loan loss reserves, the major empirical findings highlighting the existence of income smoothing behavior can be summarized as follows: 1.Domestic commercial banks, of which a relatively better performance was registered in a particular year, and a relatively worse performance is expected in the following year, allots a greater amount of discretionary loan loss reserves as a means to reduce the reported earnings in that particular year, hence, to provide more ample room for income smoothing in years to come. 2.When the taxing authorities reduce the business tax rate for domestic commercial banks, it creates some margin for income smoothing for domestic commercial banks. Domestic commercial banks therefore allot a greater amount of discretionary loan loss reserves following the reduction of business tax to provide more ample room for income smoothing to mitigate the negative influences from a turnaround policy change or from worse than expected performance in years to come. 3.State-owned banks are more concerned with earnings management presumably in the presence of pressure coming from supervising governmental bodies. The present study finds, before privatization, that State -owned banks tend to allot a relatively smaller amount of discretionary loan loss reserves than they would be otherwise as a mean to enhance reported earnings.