The Market Pricing of the Timeliness of Bank Loan Loss Recognition

Abstract

This study examines how the stock market prices US banks timeliness of loan loss recognition. Our findings are summarized as follows. First, we find that the market overprices banks with less timely loan loss recognition, whereas it underprices banks with more timely loan loss recognitioin. Second, the magnitude of such mispricing is more pronounced during economic recessions. Our findings indicate that variations in the timeliness of banks' loan loss recognition make it diffidcult for investors to value bank stocks, in particular during recissions.