Scenario bias under IFRS 9 standards

Ortiz de Zevallos, Alejandro

Scenario bias under IFRS 9 standards

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Citation

Ortiz de Zevallos, A. Scenario bias under IFRS 9 standards. 2021. handle: http://hdl.handle.net/10230/49161

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Abstract

IFRS 9, which changes the estimation of Loan Loss Provisions from an Incurred Loss model to an Expected Credit Loss model, entered into application in 2018. It changed the focus to a forward-looking perspective, which requires banks to do macroeconomic forecasts. However, banks have incentives to bias those forecasts in order to undertake earnings or capital management. For this thesis, I collect the forecasts of the 184 European listed banks from their annual reports and I conclude that they do capital management but not earnings management. The sample is small, but results hold after robustness checks and the residuals satisfy OLS assumptions.