Purpose: This study examines whether banks’ business models and listing status
drive the discretionary use of loan loss provisions (LLPs) under the International
Financial Reporting Standard (IFRS) 9 “Financial Instruments”.
Design/methodology/approach: Ordinary least squares regression is performed
on a sample of 5,147 listed and unlisted European banks for the 2018-2021 period.
Findings: The main results show that after Expected Credit Loss (ECL) implementation,
banks are prone to manage their earnings via LLPs. In detail, originateto-
hold and listed banks use LLPs to manage their earnings more strongly than originate-
to-distribute and unlisted banks. Further, during the financial crisis due to the
COVID-19 pandemic, European banks tended to manage earnings more than during
the pre-crisis period.
Originality/value: This study contributes to the existing literature by expanding
research on LLPs and highlighting ex-ante factors that might influence banks’ provisioning
behavior, such as their listing status and business model.
Practical implications: This study provides useful insights for regulators and
accounting setters in making informed decisions regarding provisioning policies,
even during periods of turmoil.
Keywords: loan loss provisions, business model, listing status, earnings management.
