An empirical study of the effect of the Tax Reform Act of 1986 loan loss reserve repeal on bank loan charge-offs /
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| Other Authors: | , , |
| Format: | Thesis Book |
| Language: | English |
| Published: |
1989.
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| Subjects: | |
| Online Access: | Link to OAKTrust copy |
| Abstract: | The Tax Reform Act of 1986 drastically changed the manner in which banks over $500 million in assets account for bad debts. The American Bankers Association asserted that this mandatory change in loan charge-off procedures would cause the banks affected to increase actual foreclosures, and therefore loan charge-offs, in order to offset the effect of the disallowed tax deduction. This research examines the reaction of banks to this change in tax law. Using regression analysis to control for variables hypothesized to affect loan write-offs, comparisons are made using the Chow test. In addition, a dichotomous independent variable (TAX) is used to identify banks affected by the change. Three sample states which have a large population of the groups predicted to be affected (farmers, energy producers, timber and construction) are selected. It is established that there is no difference in loan charge-offs between the banks affected (larger banks) and smaller banks, and that the independent variable TAX has no explanatory power before the effective date of the tax law change. A comparison of small bank's loan charge-offs (the control group) is made before and after the tax law change. As predicted, there is no significant difference. A comparison of large bank loan charge-offs before and after the effective date of the tax law change (the test group) discloses no significant difference, and the independent variable TAX has no explanatory power. Once again, large and small banks are compared after the tax law change without significant difference. The conclusion of the research is that there has been no change in net loan charge-offs before and after the repeal of the reserve method for large banks. |
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| Item Description: | Typescript (photocopy). Vita. "Major subject: Accounting." |
| Physical Description: | viii, 146 leaves ; 29 cm |
| Bibliography: | Includes bibliographical references. |