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Nonperforming loan auction: Prudent policy response or earnings management?
, Ashish Pandey
Published in Wiley
2019
Volume: 19
   
Issue: 4
Abstract
The use of asset management companies is one of the standard policy prescriptions for the resolution of the banking crisis. In this paper, we investigate whether banks use the sale of nonperforming loans to asset management companies to exploit the accounting guidelines and manage their reported earnings. Using nonperforming loans sale data of Indian banks, we examine the role of income smoothing, regulatory capital compliance, and ownership concentration in cherry-picking nonperforming loans offered for sale. We report evidence that the above considerations dissimilarly affect selective identification of nonperforming loans. Our results show that banks with below average return on assets, banks with below average capital ratio, and banks with a significant government ownership engage in selective identification of nonperforming loans offered for sale.
About the journal
JournalData powered by TypesetJournal of Public Affairs
PublisherData powered by TypesetWiley
ISSN1472-3891
Open AccessNo