FFA Working Papers 4:003 (2022)1196

Profit smoothing of European banks under IFRS 9

Oµga Jakubíková
Prague University of Economics and Business

The aim of this paper is to examine whether banks engage in profit smoothing using loan loss provisions under the new provisioning rules according to IFRS 9. Due to relatively loose definitions of provisioning principles and use of macroeconomic predictions under IFRS 9, there is certain managerial discretion expected allowing banks to reduce the variability of profits over time using loan loss provisions. The hypothesis that banks use loan loss provisions to smooth their profits under IFRS 9 was tested with panel regression analysis on the panel of 27 EU member countries for period 1Q2015 – 2Q2021. The evidence of profit smoothing was not confirmed neither in IFRS 9, nor in IAS 39 period, therefore, the hypothesis was rejected on 1% significance level.

Keywords: IFRS 9, loan loss provisions, profit smoothing
JEL classification: G12, G21, G32

Received: January 26, 2022; Revised: February 21, 2022; Accepted: February 22, 2022; Published online: March 6, 2022  Show citation

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Jakubíková, O. (2022). Profit smoothing of European banks under IFRS 9. FFA Working Papers, 4, Article 2022.003. https://doi.org/10.XXXX/xxx.2022.003
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