Discretionary behavior with respect to allowances for loan losses and the behavior of security prices
Year: 1996
Type: article
Abstract: The study examines the capital market pricing of discretionary and nondiscretionary components of a major accrual in the banking industry, the allowance for loan losses. The analysis employs a two-stage approach in which the allowance account is first decomposed into estimates of its nondiscretionary and discretionary components. The second stage evaluates the market's valuation of the estimates of the components. Evidence suggests that the capital market perceives the allowance to be comprised of two components, a nondiscretionary component which is negatively priced and a discretionary component whose incremental pricing coefficient is positive.
Authors: William H. Beaver, Ellen E. Engel
Institution: Stanford University
Language: English
Subfield: Accounting
Domain: Social Sciences
Open Access status: hybrid
Estimated APC paid: $4,170
OpenAlex ID: W2019084876