What drives discretionary loan loss provisions? The role of banks’ business model, listing status and COVID-19 crisis in the European banking sector

By | 2024-02-09T01:44:54+01:00 February 9th, 2024|

Alessandra Allini, Fiorenza Meucci, Flavio Spagnuolo, Annamaria Zampella / Financial Reporting / 2-2023


Purpose: This study examines whether banks’ business models and listing sta-tus drive the discretionary use of loan loss provisions (LLPs) under the Interna-tional Financial Reporting Standard (IFRS) 9 “Financial Instruments”. Design/methodology/approach: Ordinary least squares regression is per-formed on a sample of 5,147 listed and unlisted European banks for the 2018-2021 period. Findings: The main results show that after Expected Credit Loss (ECL) im-plementation, banks are prone to manage their earnings via LLPs. In detail, origi-nate-to-hold and listed banks use LLPs to manage their earnings more strongly than originate-to-distribute and unlisted banks. Further, during the financial crisis due to the COVID-19 pandemic, European banks tended to manage earnings more than during the pre-crisis period. Originality/value: This study contributes to the existing literature by expand-ing research on LLPs and highlighting ex-ante factors that might influence banks’ provisioning behavior, such as their listing status and business model. Practical implications: This study provides useful insights for regulators and accounting setters in making informed decisions regarding provisioning policies, even during periods of turmoil.

 


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Improving business model disclosure in the annual report: Insights from an interventionist research project

By | 2022-02-03T11:56:43+01:00 February 3rd, 2022|

Carlo Bagnoli, Antonio Costantini, Maurizio Massaro  / Financial Reporting / 2-2021


Responding to the calls for empirical research on the extent and nature of business model reporting, this paper has the purpose to assess the quality of business model disclosure. To accomplish this purpose, the study takes advantage of an interventionist research project that was conducted in an Italian listed company operating in the information technology industry to investigate how the business model was disclosed in the annual report and provide feedback to support possible changes. The study uses a framework of analysis that helped to assess the quality of business model disclosure in terms of three attributes: amount, spread and connectivity. The annual report of two consecutive fiscal years was analyzed. The study mainly shows that the measurement and assessment of BM disclosure quality can facilitate its improvement. The analysis enabled meaningful in-sights on BM’s quality to emerge, delivering evidence on the relative importance, coverage and interconnections of BM’s disclosed components. Further, the interventionist approach helped to shape managers’ view on how to tackle disclosure issues and offer more effective communication of the BM according to the company purposes..

 


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The effects of business model regulation on the value relevance of traditional performance measures. Some evidence from UK companies

By | 2019-09-27T10:11:01+02:00 September 27th, 2019|

Simoni Lorenzo, Bini Laura, Giunta Francesco / Financial Reporting / 1-2019


The first case in the world of a mandatory requirement to disclose business model (BM) in the annual report is represented by Companies Act 2013 issued in the UK. The BM offers a simplified representation of a company’s key resources and of how these are combined to create value. For this reason, a systematic communication of BM should affect the way a company’s book value and its capability to generate earnings are perceived. The purpose of this work is to investigate the impact of mandatory BM disclosure on the value relevance of traditional financial measures. Focusing on a sample of UK listed companies over a six-year period, Ohlson model is utlized to assess the value relevance of book value and net income and their interactions with a dummy variable that accounts for the introduction of mandatory disclosure of BM. In line with previous studies on non-financial disclosure regulations, results show that the introduction of the mandatory requirement to disclose BM has a negative moderating effect on book value of equity and a positive moderating effect on net income. As this is the firt study to investigate the effects of a mandatory BM disclosure regime, it could be of interest for both academics and standard-setters.

business model, value relevance, regulation


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Business model in management commentary and the links with management accounting

By | 2017-12-27T17:38:35+01:00 December 27th, 2017|

Cinquini Lino, Tenucci Andrea/ Financial ReportingRiviste / Fascicolo: 3-2011


Management commentary (MC) is a non mandatory narrative report that provides a context within which to interpret the financial position, financial performance and cash flows of an entity to associate to the financial statement. Within the framework of MC, the paper focuses on the role of the “business model” in supporting information required by MC section “nature of the business”. Furthermore the potential role of Management Accounting in providing the managerial financial and non financial information to improve the quality information on the “nature of the business” is explored.

Keywords: Business model, management accounting, management commentary


 

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Business Model Literature Overview

By | 2017-12-27T14:19:08+01:00 December 27th, 2017|

Novak Ales/ Financial ReportingRiviste / Fascicolo: 1-2014


The term “business model” has recently attracted increased attention in the context of financial reporting and was formally introduced into the IFRS literature when IFRS 9 Financial Instruments was published in November 2009. However, IFRS 9 did not fully define the term ‘business model’. Furthermore, the literature on business models is quite diverse. It has been conducted in largely isolated fashion; therefore, no generally accepted definition of ?business model’ has emerged. Therefore, a better understanding of the notion itself should be developed before further investigating its potential role within financial reporting. The aim of this paper is to highlight some of the perceived key themes and to identify other bases for grouping/organizing the literature based on business models. The contributions this paper makes to the literature are twofold: first, it complements previous review papers on business models; second, it contains a clear position on the distinction between the notions of the business model and strategy, which many authors identify as a key element in better explaining and communicating the notion of the business model. In this author’s opinion, the term ‘strategy’ is a dynamic and forward-looking notion, a sort of directional roadmap for future courses of action, whereas, ‘business model’ is a more static notion, reflecting the conceptualisation of the company’s underlying core business logic. The conclusion contains the author’s thoughts on the role of the business model in financial reporting.

Keywords: Business model, literature overview, meaning of the term, strategy


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Put Your Money where Your Mouth is: The Difference between Real Commitment to Sustainability and Mere Rhetoric

By | 2017-12-22T10:26:32+01:00 December 21st, 2017|

Bini Laura, Bellucci Marco, Giunta Francesco/ Financial ReportingRiviste / Fascicolo: 2-2016


Companies exhibit growing interest in sustainability rhetoric. Such an interest is alternatively justified by a company’s need to address legitimacy instances, rather than to satisfy stakeholders’ requests about its sustainability performance. Whatever the case, a main debated issue concerning sustainability rhetoric deals with the difficulties in understanding whether companies’ commitment towards sustainability is “real”, or it only consists of “empty words” that hide opportunistic strategies. Our paper contributes to this debate, proposing a methodological approach, which is based on a company’s business model (BM) representation. We argue that the inclusion of adequate sustainability information in a company’s BM representation can testify to a real company’s engagement, as it illustrates how sustainability affects its value creation process. Compared to extant methodological proposals, mainly based on linguistic analyses, our approach does not require specific competences to be applied. Moreover, it saves user’s time, as it allows the assessment of entire company’s sustainability rhetoric through the analysis of the information reported in its BM. Our approach is consistent with previous contributions that propose a company’s BM as a representation device able to illustrate strategic information that cannot be represented in the traditional corporate reporting. Our approach proposes a possible answer to address the challenges faced by regulators and standard setters involved in the regulation of sustainability disclosure. Such approach has found a first step of implementation in the UK, where since 2013, listed companies are requested to describe their BM in Strategic Reports.

Keywords: Sustainability rhetoric, business model, corporate social responsibility, non-financial disclosure, mining industry


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