An Assessment of the Within-Year Seasonality in the Loan Loss Provisioning Behavior of European Banks

This study is aimed at assessing whether a significant within-year seasonality exists in the loan loss provisioning behavior of European listed banks observed in the period from 2004 to 2013. Since the accuracy of auditing processes and the level of disclosure requirements in financial reports differ among quarters, during the year, banks may have a leeway to underestimate and postpone the complete provisioning of loan losses in the less regulated and less audited quarters. We hypothesize that those differences are relevant factors which determine non-lower or significantly higher average levels of loan loss provisions in the half-yearly and especially in the annual financial reports than in the interim management statements disclosed in the first and the third quarters of the year. We also investigate the impact of the recent financial crisis and develop a special analysis for the Italian banks’ case. The empirical results support our hypotheses, suggesting that, in some cases, a convergence among quarterly levels of auditing processes and disclosure requirements may be needed. Our work contributes to the existing literature by providing additional evidences and considerations on the within-year seasonality in the loan loss provisioning behavior of European listed banks observed in the last decade.