‘Size & Fit’ of Piecemeal Liquidation Processes: Aggravating Circumstances and Side Effects

Open Review of Management, Banking and Finance, Forthcoming

32 Pages Posted: 10 Feb 2021

See all articles by Rosa Cocozza

Rosa Cocozza

University of Naples Federico II - Faculty of Economics

Rainer Masera

Università degli Studi Guglielmo Marconi

Date Written: October 18, 2020

Abstract

This paper investigates the actual impact of new accounting and regulatory requirements on banks’ provisioning policies and earnings management in the context of the capital adequacy of Euro Area (EA) credit institutions. This paper also examines whether loan-loss provisions signal managements’ expectations concerning future bank profits to investors. Evidence drawn from the 2011-2019 period indicates that earnings management is an important determinant of LLPs for EA intermediaries. During recent years, small bank managers are much more concerned with their credit portfolio quality and do not use LLPs for discretionary purposes apart from income smoothing. The paper gives evidence of a lack of flexibility in the Balance-Sheet of smaller banks and provides some policy refinement to avoid disorderly piecemeal liquidation.

Keywords: Banks, Bank Regulation, Bank Supervision, Capital Management, Income Smoothing, Loan-Loss Provisions, Signaling, Proportionality

JEL Classification: G01, G21, G28, M41

Suggested Citation

Cocozza, Rosa and Masera, Rainer, ‘Size & Fit’ of Piecemeal Liquidation Processes: Aggravating Circumstances and Side Effects (October 18, 2020). Open Review of Management, Banking and Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3742613 or http://dx.doi.org/10.2139/ssrn.3742613

Rosa Cocozza (Contact Author)

University of Naples Federico II - Faculty of Economics ( email )

Via Cintia Monte S. Angelo
Napoli, 80126
Italy
+39/81675083 (Phone)

HOME PAGE: http://www.docenti.unina.it/rosa.cocozza

Rainer Masera

Università degli Studi Guglielmo Marconi ( email )

Via Plinio 44
Rome, Rome 00193
Italy
+39 06 377251 (Phone)

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