IFRS 9 implementation and bank risk

Kyiu, Anthony; Tawiah, Vincent

Abstract

In this paper, we investigate the impact of IFRS 9 – Financial instruments on bank risk. Using a sample of 666 banks across 61 countries for the period 2016–2019, we find a decrease in bank risk following the implementation of IFRS 9. This implies that the forward-looking loan loss provisioning, mandated under IFRS 9, facilitates a reduction in bank risk. We find this effect to be more pronounced for riskier banks, suggesting that the implementation of IFRS 9 is a sign of effective regulation for banks rather than a manifestation of regulatory overreach. We also find the effect to be greater for banks in countries with stronger accounting regulatory enforcement and high banking supervision intensity. Overall, our results, which are robust to different estimation techniques, including multi-level hierarchical regressions and entropy balancing estimations, show that increased transparency and timely recognition under IFRS 9 reduce bank risk.

Citation

Kyiu, A., & Tawiah, V. (2023). IFRS 9 implementation and bank risk. Accounting Forum, https://doi.org/10.1080/01559982.2023.2233861

• Journal Article Type: Article
• Acceptance Date: Jul 3, 2023
• Online Publication Date: Aug 11, 2023
• Publication Date: 2023
• Deposit Date: Aug 14, 2023
• Publicly Available Date: Aug 14, 2023
• Journal: Accounting Forum
• Print ISSN: 0155-9982
• Electronic ISSN: 1467-6303
• Publisher: Taylor and Francis Group
• Peer Reviewed: Peer Reviewed
• DOI: https://doi.org/10.1080/01559982.2023.2233861
• Keywords: IFRS 9; bank risk, financial stability, loan loss provision
• Public URL: https://durham-repository.worktribe.com/output/1716343