Economic Policy Uncertainty And Loan Loss Provisions Of Commercial Banks

In this paper,the economic policy uncertainty index constructed by Baker et al.(2016)is used as a proxy variable for the uncertainty of China's economic policy to study the relationship between economic policy uncertainty and loan loss provisions by commercial banks in China.There is a significant positive correlation between economic policy uncertainty and loan loss provisions by commercial banks.This is because economic policy uncertainty will increase the degree of information asymmetry between banks and enterprises,reduce the solvency of customers,and affect bank managers' estimates of the company's solvency when accruing loan provisions,leading commercial banks to make more loan loss provisions when economic policy uncertainty rises.In addition,economic policy uncertainty has a heterogeneous impact on the loan loss provisions for listed and non-listed commercial banks.Due to rational stakeholders have higher requirements for the conservatism of listed banks,the positive effect of economic policy uncertainty on the loan loss provisions is more significant in listed commercial banks.From the perspective of loan loss provision components,economic policy uncertainty increases manipulable loan loss provisions,indicating that economic policy uncertainty will lead to increased risk awareness of bank managers and increase loan loss provisions from the perspective of risk prevention.The above conclusions still hold after robustness tests.This paper further explores the risk response mechanism of commercial banks by discussing the impact mechanism of economic policy uncertainty on loan loss provisions.