Does Loan Loss Provision Timeliness Affect the Accuracy, Informativeness, and Predictability of Analyst Provision Forecasts?

We examine how the properties of equity analysts’ bank loan loss provision forecasts differ with provision timeliness. We find that the accuracy of analyst provision forecasts relative to time-series provision forecasts is more pronounced for banks with more timely loan loss provisions. Consistent with the greater accuracy of analysts’ provision forecast for timely banks, we find that, controlling for time series provision expectations, the equity market’s incremental response to analysts’ provision forecasts beyond earnings forecasts is greater for banks with more timely loan loss provisions. We further verify that the provision forecast is a better predictor of future non-performing assets for banks with timely provisions. Finally, we find a greater ability of analysts’ provision forecasts to predict non-performing assets when analysts also provide a nonperforming asset forecast that is larger for timely than for untimely banks. We thank seminar participants at the University of Arizona, Andy Call and Shuping Chen for their thoughtful comments and suggestions.