VIEWS: 29 PAGES: 17 CATEGORY: Business & Economics POSTED ON: 5/28/2010
A literature review of loan loss estimation management by bank managers is presented. Potential opportunistic behaviors by commercial loan officers at the time of loan granting and during file follow-up are addressed. In connection with the literature on loan loss estimation management by bank managers, the role of the commercial loan officers regarding loan loss estimation management in files involving businesses in financial difficulty is explored. Researchers have done very little research on the commercial loan officers' work, who play a significant role in loan loss estimations. The agency theory and the positive accounting theory allow us to assume that they may adopt opportunistic behaviors in various aspects of their work. In terms of loan granting, their horizon, which is likely to be shorter than that of the principal, could lower their aversion to risk. Due to the diversity of their tasks, CLOs are responsible both for business development and file follow-up. Based on the compensation plan and the controls put into place, the effort may be oriented opportunistically towards the most lucrative activity. Lastly, managing files involving businesses in financial difficulty allows CLOs to adopt various strategies of loan loss estimation management to maximize their utility.
LOAN LOSS ESTIMATION MANAGEMENT BY FINANCIAL INSTITUTION MANAGERS AND COMMERCIAL LOAN OFFICERS1 Sébastien Deschênes, CA, CFA Professor of Accounting University of Moncton, New Brunswick, Canada Sebastien.Deschenes@umoncton.ca This paper presents a literature review of loan loss estimation management by bank managers. First, pot
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