The impact of international financial reporting standards (IFRS) on bank loan loss provisioning behaviour and bank earnings volatility : a thesis presented in partial fulfilment of the requirements for the degree of Doctor of Philosophy in Banking Studies at Massey University, Manawatu Campus, New Zealand

Abstract

This thesis explores the impact of the adoption of IAS 39 under the new accounting standards, the International Financial Reporting Standards (IFRS), on bank income smoothing activities, bank pro-cyclical behaviour through loan loss provisions, and bank earnings volatility. It does this by looking at a sample of commercial banks from six countries in the Asia Pacific region over the period 1995 to 2009. By looking at the impact of IFRS (via IAS 39) on adopters and non-adopters, this thesis contributes to the literature by investigating the impact of IFRS adoption on IFRS adopting banks in this region.

The findings demonstrate that IFRS adoption leads to a reduction in income smoothing activities through loan loss provisions for IFRS adopters. With respect to the argument that IFRS adoption would cause more pro-cyclical behaviour of loan loss provisions, the findings from this thesis could not find enough evidence to support the suggestion that IAS 39 amplifies pro-cyclicality of bank loan loss provisioning among the adopters. For the suggestion that IFRS might cause more volatility of earnings for the adopters, there is evidence of more volatile earnings after IFRS adoption, but extra caution is needed in interpreting the findings as they may have been driven by the global recession in 2008. Finally, for the conjecture that IFRS adoption leads to higher earnings volatility for IFRS adopters than that of non-adopters, there is insufficient evidence to support this suggestion.