Journal of Accounting and Economics Vol. 73 No. 1 2022
An information quality-based explanation for loan loss allowance inadequacy during the 2008 financial crisis
open access
Abstract
I study whether commercial banks' loan loss allowances were inadequate during the 2008 financial crisis because bank managers relied on low-quality information to estimate loan losses. To measure the quality of information collected on bank-held mortgages prior to the crisis, I create a bank exposure-to-mortgage fraud risk index (EFI) that captures overstatement of borrower income in mortgage applications. I find banks that originated more loans in high-risk neighborhoods had less adequate loan loss allowances during the crisis. My study is consistent with the hypothesis that fraudulent borrower information adversely affected banks’ loan loss provisioning.
- DOI
- 10.1016/j.jacceco.2021.101433
- Volume
- 73
- Issue
- 1
- Pages
- 101433
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref