Answer to Question #248675 in Finance for jackjack

Question #248675

How does loss provision affect financial institution's capital and share price?


1
Expert's answer
2021-10-10T16:29:38-0400

Empirical studies

have shown that loan-loss provisions are used mainly in three types of discretional practices:

1) to smooth income; 2) to manage capital; and 3) to signal financial strength


The private-control-benefits hypothesis states that managers, acting in the best interests of

their shareholders, would smooth earnings in order to minimize the perceived riskiness of a

bank’s earnings and thereby maximize the bank’s share price.


Provisions for possible losses on ships affect the undistributed profits of banks, which in turn affects the capital and the value of shares.


Need a fast expert's response?

Submit order

and get a quick answer at the best price

for any assignment or question with DETAILED EXPLANATIONS!

Comments

No comments. Be the first!

Leave a comment

Ask Your question

LATEST TUTORIALS
New on Blog
APPROVED BY CLIENTS