Proceedings of 8th Annual London Business Research Conference
Imperial College, London, UK, 8 - 9 July, 2013, ISBN: 978-1-922069-28-3
Income-Smoothıng Hypothesıs: Experıence from Turkısh
Bankıng Sector
Merve Acar*1 and Mustafa Omer Ipci**
Extensive research have examined the role of loan loss provisions
in capital and earnings management in banking sector. To date, no
studies have explored this relationship in Turkey concept. Using a
sample of 28 commercial banks for 2005-2011 period, this study
investigates whether banks operating in Turkey use loan loss
provisions to smooth their income streams by using panel data
analysis. We also test whether loan loss provisions are used as a
tool to signal managers’ expectations about future bank profits to
investors. The empirical evidence supports the income smoothing
hypothesis for the Turkish Banking Sector but it disappears during
the global financial sector crisis (2007-2009 period). It should also
be noted that income smoothing behavior of the foreign banks are
much more stronger than the domestic banks. Results also confirm
the signaling hypothesis that bank managers use loan loss
provisions to give some private information about their banks’
favorable future prospects.
JEL Codes: C33, G21, M41
*Merve ACAR, Department of Business Administration (Accounting), School of Management, Yildirim
Beyazit University, Ankara-Turkey, Email: merturk@ybu.edu.tr
**Prof. Dr. Mustafa Omer IPCI, Department of Business Administration (Accounting-Finance),
Hacettepe University, Ankara-Turkey, Email: ipci@hacettepe.edu.tr