“An Information Quality-Based Explanation for Delayed Loan Loss Provisioning During the 2008 Financial Crisis” – by Ms. Ling Yang
Ms. Ling Yang
Ph.D. Candidate in Accounting
Booth School of Business
University of Chicago
I study whether bank managers delayed loan loss provisioning during the 2008 financial crisis because they 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 delayed loan loss provisioning more during the crisis. The effect is consistent with the hypothesis that fraudulent borrower information negatively affected loan loss provisioning. Information quality is an important factor in provisioning timeliness.