Abstract

The aim of this study is to provide the first empirical evidence of income smoothing, capital management, signaling, and pro-cyclical behavior through loan loss provisions (LLP) for Mozambican commercial Banks, an example of the under-developed country. A second goal is to understand the bank lending behavior during the Mozambique’s hidden public debt crisis. The sample consists of all commercial banks observed during 2010-2016. We provide strong evidence that Mozambican commercial banks are pro-cyclical through LLP and these banks engage in income smoothing activity. However, for capital management activity and signaling behavior, we provide insignificant evidence to support these hypotheses among Mozambican commercial banks via LLP. Also, the result indicates that Mozambique’s hidden public debt crisis, the commercial banks put aside more provisions.

This work is licensed under a Creative Commons Attribution 4.0 License.