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Loan loss reserves and bank stock returns: Evidence from Asian banks

Agusman, A., Gasbarro, D., Monroe, G.S. and Zumwalt, J.K. (2008) Loan loss reserves and bank stock returns: Evidence from Asian banks. In: 21st Australasian Finance and Banking Conference, 16 - 18 December, Sydney, NSW, Australia

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This study examines the effects of the loan-loss-reserves-to-gross-loans ratio, a proxy for credit risk, on bank stock returns for a sample of 42 listed Asian banks during the period 1999-2007. By applying a panel data analysis that includes a control for market returns, book-to-market ratio, size, and country-specific factors, the results show that the ratio has a negative and significant influence on bank stock returns. Overall, the results suggest that credit risk remains a major threat to Asian banks. In addition, while loan loss reserves are needed for mitigating credit risk, investors do not consider them as good news or a credible signal concerning bank intentions to resolve problem loans.

Item Type: Conference Paper
Murdoch Affiliation(s): Murdoch Business School
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