research on the relationship of commercial bank’s loan loss provision and earning management and capital management研究商业银行的贷款损失的关系和收入管理和资本管理的条款.pdf

Journal of Service Science and Management, 2012, 5, 171-179 171 /10.4236/jssm.2012.52021 Published Online June 2012 (http://www.SciRP.org/journal/jssm) Research on the Relationship of Commercial Bank’s Loan Loss Provision and Earning Management and Capital Management 1 2 1 Xianlei Dong , Jia Liu , Beibei Hu 1School of Economics and Management, Beijing University of Technology, Beijing, China; 2China Construction Bank of Shandong Branch, Jinan, China. Email: sddongxianlei@163.com Received January 11th, 2012; revised February 24th, 2012; accepted March 5th, 2012 ABSTRACT This paper reviewed and analyzed the development of our nation’s loan loss provision system, then studied the relations of commercial bank loan loss provision and earnings management and capital management through empirical study. This paper selected 14 domestic commercial banks of year 2001-2009 as data sample, using Kanagaretnam et al.’s (2003) research method, dividing the loan loss provision into two parts that is discretionary and nondiscretionary part, and empirically studied the relationship of discretionary part of loan loss provision and earnings before taxes and pro- visions (EBTP) and capital adequacy ratio (CAR). Empirical results show that: there is significant positive correlation between the discretionary loan loss provisions and earnings before taxes and provisions (EBTP), and there is significant negative correlation between the discretionary loan loss provisions and capital adequacy ratio (CAR). That provides evidence for the relation of bank loan loss provision and earnings management and capital management. In the last, combining with empirical research findings and the status of the loan loss provision system of China’s commercial banks, this paper made seve