Smoothing bank results: the moderating effect of gender in boards of directors and periods of crisis

The main objective of this study is to analyze whether European banks engage in the practice of income smoothing through the discretionary use of Loan Loss Provisions (LLP). At the same time, it aims to assess whether periods of crisis and the gender diversity of the board of directors of European banks have a moderating effect on the practice of smoothing bank results through the use of LLP. To achieve this objective, we used a panel of 378 listed banks from 39 European countries fron 2003 to 2021. To test the research hypotheses, a fixed effects model was used. In addition, to check for potential differences at regional level, the sample was broken down into four regions. Empirical evidence was obtained suggesting that the banks in the sample tend to use LLP to smooth their results. In addition, the empirical evidence suggests that periods of crisis and the gender diversity of the banks' board of directors have a moderating effect, in the negative sense, on the income smoothing practices of the banks in the sample. Breaking down the European sample into different regions, the results suggest that the practice of income smoothing through the use of LLP tends to be a reality for the listed banks in all four regions considered. In addition, and expectably, periods of crisis and the gender diversity of the board of directors tend to have a slightly different impact on the practice of income smoothing between the various regions. To the best of our knowledge, this study contributes to clarifying the literature on the impact of the 2007 financial crisis on the practice of bank income smoothing. In addition, it will be one of the first to comprehensively investigate the impact of the COVID-19 pandemic and gender diversity on the practice of smoothing bank results through the use of LLP in the European context.