What Explains Changes In Accounting Divisional Performance Under Liquidity Shortage Conditions? Evidence from the Greek Banking

Aggelopoulos, Eleftherios Article What Explains Changes In Accounting Divisional Performance Under Liquidity Shortage Conditions? Evidence from the Greek Banking Journal of Accounting and Management Information Systems (JAMIS) Provided in Cooperation with: The Bucharest University of Economic Studies Suggested Citation: Aggelopoulos, Eleftherios (2017) : What Explains Changes In Accounting Divisional Performance Under Liquidity Shortage Conditions? Evidence from the Greek Banking, Journal of Accounting and Management Information Systems (JAMIS), ISSN 2559-6004, Bucharest University of Economic Studies, Bucharest, Vol. 16, Iss. 1, pp. 89-106 This Version is available at: https://hdl.handle.net/10419/310656 Standard-Nutzungsbedingungen: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden. Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen. Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in EconStor may be saved and copied for your personal and scholarly purposes. You are not to copy documents for public or commercial purposes, to exhibit the documents publicly, to make them publicly available on the internet, or to distribute or otherwise use the documents in public. If the documents have been made available under an Open Content Licence (especially Creative Commons Licences), you may exercise further usage rights as specified in the indicated licence. http://creativecommons.org/licenses/by/4.0/ Accounting and Management Information Systems Vol. 16, No. 2, pp. 89-106 What explains changes in accounting divisional performance under liquidity shortage conditions? Evidence from the Greek Banking Eleftherios Aggelopoulos a 1 a University of Patras, Greece Abstract: This is the first study which tests empirically to which extent the quality and the spread of consumer and small business loans are responsible for the increases or decreases in branch accounting performance, measured by the Residual Income (RI) performance indicator, over time. Moreover, given extreme liquidity shortage conditions the paper investigates to which extent the above factors are responsible for changes in RI. Unique accounting information derived from the Management Information System (MIS) of a Greek systemic commercial bank is utilized. The study finds that lending spreads for both types of loans are positively and statistically significant related to RI. The crisis increases the positive value effect of consumer lending spreads while reduces the value premium of small business lending spreads. The latter indicates that the upward repricing of small business credit lines during crisis years seems to destroy value due to the side effects that the repricing loan policy activates (i.e. reduces the repayment ability of borrowers). Moreover, the enormous increase of loan loss impairments during crisis exercises an extra negative impact on RI thus further accelerating shareholder value destruction, for both loan portfolios. The study provides useful information about the thorough understanding of the quality of banking performance at the retail level in bank-driven crisis economies. Keywords: Divisional performance, lending operations, retail branches, spread and credit risk, crisis 1 Adjunct Lecturer in Financial Accounting, Department of Business Administration, University of Patras, University Campus, 26504, Rio - Patras, Greece, tel (+30) 6972197414, email: [email protected] What explains changes in accounting divisional performance under liquidity shortage conditions? Evidence from the Greek Banking Vol. 16, No. 1 90 JEL codes: M41, G21 1. Introduction According to Deville (2009), “Retail banking has always erred on the side of caution. The result of such practise has been the creation of inertia in branch management and performance evaluation”. Indeed, the literature review reveals a significant proliferation of research on bank performance and efficiency (Garcia-Herrero et al., 2009; Fiordelisi & Molyneux, 2010), but only few on branch performance where the unit of analysis is an individual branch of the bank. The main reasons include the lack of easy access to branch level data and the condition to have practical knowledge on the way the bank branch operates. Given that commercial banking is based on the operation of a network of bank branches and these branches are involved in all the crucial steps of modern banking like cost and risk management, the branch performance analysis is expected to have important implications for the bank management, policymakers and academics. The main research question that the paper attempts to answer is as follows: To which extent the quality of the loan portfolio and the lending spreads - which are two crucial value factors with important trade-offs between them - are responsible for changes in shareholder value creation at the branch level and how this value effect is associated with the type of the loan portfolio and external environmental changes? In particular, the paper measures the impact of credit risk and lending spreads, related to the consumer and small business loan portfolio, on the value creation process over time taking into account changes in the external environment in terms of liquidity. Τhe analysis focuses on consumer and small business loans where their volumes are large and they generate substantial income and risks (i.e. mortgage loans are not incorporated into the analysis since provisions for these collaterized loans were somewhat fixed over time). Generally, measuring the divisional performance of banks such as the performance of bank branches is of great importance since this bottom level performance analysis ensures that changes on shareholder value can be measured directly at their sources by also capturing the direct crisis effects immediately. Two are the crucial conditions as regards the effective measurement of divisional performance: the structure of the analysis and the homogeneity of the data set. The employed data set satisfies adequately these two conditions. Specifically, regarding the structure of the paper, the study uses internal data of bank branches of a specific banking institution. As the literature reports (see Gross, 2006), a research design in retail banking performance should be based on internal data of bank branches of a specific banking institution and not be performed across competing banking institutions since the definition of the retail segment considerably varies across banks. Moreover, the paper examines a strict homogeneous data set of branches in terms of their activity and size. In particular, a novel data set, derived from the monthly Profit and Loss (P&L) Accounting and Management Information Systems 91 Vol. 16, No. 1 statements of homogeneous retail branches of one of the four largest commercial banks in Greece, is utilized over the period January 2006 to December 2010. Subsequently, this period is divided into the credit boom period (Period A: January 2006- August 2008) and the first phase of the crisis period (Period B: September 2008 - December 2010). In total, the data sample is a balanced panel with 27 homogeneous retail branches spread across Greece and 1,620 monthly observations over the period from January 2006 to December 2010. The data set is representative as the Greek banking industry is very oligopolistic (i.e. there are four systemic Greek commercial banks: The National Bank of Greece, Piraeus Bank, Eurobank and Alpha Bank) and quite homogeneous operating in commercial banking, mainly retail banking. A fixed-effects model specification is applied to the panel of retail branches which produces efficient estimates. It is worth noting, that since the study explores the liquidity shortage effects on lending spreads and credit risk quality where there is an exogenous shock to the banking sector, the results are expected to not suffer from endogeneity problems. For measuring shareholder value, the performance indicator of Residual Income is used (thus RI is the dependent variable). RI is an effective measure of shareholder value creation at bottom level (Koller et al., 2005). In the same spirit other SHV banking studies (Fiordelisi & Molyneux, 2010, 2007) use the Economic Value Added (EVA) model adjusting accounting net operating profits by adding back loan loss impairments (considering that they used to manage earnings and smooth earnings overtime) and subtracting net charge offs. However, Gross (2006) reports that such adjustments to provisions may potentially no longer be needed since the provisions requirements under International Accounting Standard 39 (IAS 39), which are based on observable data, lead to more realistic figures and so they can be considered as cash cost. Overall, the study proposes that RI model and other SHV models such as EVA and Economic Profit (EP) are often identical in practice (see also Bodmer, 2001). The results overall indicate that both the lending spread earned on consumer and small business loans and the credit risk-taking on these loans, are significantly associated with the RI, but with a different statistical sign. In particular, the lending spreads for both types of loans are positively and statistically significant related to RI. The crisis increases the positive value effect of consumer lending spreads while reduces the value premium of small business lending spreads. The latter is due to the negative value effects of the upward repricing credit policy that the small business loans segment followed in the crisis period. As regards the credit risk value driver, the occurrence of liquidity shortage increases the generally negative value effect of credit risk for both loan categories. The results have important implications for policymakers and bank managers (see the discussion section below). Generally, the study provides useful information about the quality of banking performance at the retail level in the “bank-driven” crisis economy of Greece which is characterized by sovereign debt and a relatively weak local financial market, as well as other What explains changes in accounting divisional performance under liquidity shortage conditions? Evidence from the Greek Banking Vol. 16, No. 1 92 Mediterranean economies of the European region (e.g. Italy, Portugal, and Spain). In this way, this might offer useful lessons for those specific countries as well. The rest of this paper is organized as follows: Section two illustrates the recent developments in the Greek banking sector. Section three presents the theoretical framework of the study along with the related literature review. Section four presents the methodology employed to construct the model. Section five describes the data set, the definition of variables used in the study, and it illustrates the empirical results. The last section concludes the study and discusses its main findings. 2. A brief overview of the Greek banking industry – the passage of the expansion period to the crisis period Until the end of the 1980’s the domestic banking sector was heavily protected and regulated (protectionism period). Since then the Greek banking industry has faced structural changes caused by liberalization and deregulation (liberalization period). The liberalization period is of particular interest for this research since the new environment has positively affected the performance of banking institutions in the local economy, especially their retail banking activities, and enabled banks to better serve the interests of shareholders with similar strategies. Up to 2008 the domestic banking market was steadily expanding (expansion period). In particular, the liberalization of the capital account in the 1990’s which allowed Greek enterprises and individuals to borrow in lower yielding foreign currencies, triggered credit growth. Moreover, the abolition of various regulatory credit ceilings, the adoption of the Euro in 2001 with the subsequent decline in interest rates and the increased competition amongst financial institutions, boosted the demand for credit further. The fast growth of the Greek banking sector relied heavily on a wide distribution network, thus branch performance had a significant performance effect on the bank as a whole, as the number of branches increased by 24% during 2003-2008 (Bank of Greece, 2009). The systematic global crisis that started in August 2007 in conjunction with high public debt of the Greek economy discontinued in 2008 the expansion process of the banking industry and threw the domestic financial market in deep crisis and afterwards the real economy i . Consequently, the crisis caused the drying up of liquidity in the domestic interbank market, and led to a substantial increase in deposit and lending rates. However, this crisis transmitted to the local banking system with a greater time lag if compared with most of the EU. The reason is that Greek banks have been focused on retail banking and not on investment banking activities, as in the case of other EU banks that caused huge marked to market losses related to toxic assets. Accounting and Management Information Systems 93 Vol. 16, No. 1 Since the study takes into account the first phase of the crisis and for the needs of our empirical research, the starting point of the crisis that marks the economic alteration should be determined. Exogenously it is observed that the average interest rates of time deposits for Greek banks increased markedly in September 2008 (Bank of Greece, 2009). Specifically, in that month the interest rates of time deposits jumped from 4.99% (August 2008) to 5.11% with an increasing trend until the end of December 2008, where the month rate was 5.36%. So, the structural point at which the crisis started with the form of liquidity shortage, is positioned on September 2008. 3. Literature review and determinants of value creation 3.1 Literature on determinants of shareholder value There is a large amount of literature exploring generally how European banks are able to increase their performance and profitability. Studies like Dietrich and Wanzenried (2011), Athanasoglou et al. (2008), Brissimis et al. (2008), Lepetit et al. (2008) or Salas and Saurina (2003) investigate bank-specific variables that may have an impact on banking profitability measured by ROE or other efficiency measures. Their results vary since there are differences in studied time periods and sample countries. Also, the examination of the impact of crisis on bank profitability drivers is scarce. More specifically, Dietrich and Wanzenried (2011) analyze profitability determinants of 372 commercial banks in Switzerland during the precrisis period (1999 – 2006) and the crisis years (2007-2009). They find that the profitability effect of credit risk taking is negative and significant, only in the crisis period. A gap is located on the empirical literature on measuring shareholder value creation as a proxy for bank performance and identify relevant value drivers. In particular, Fiordelisi and Molyneux (2010), examining several bank- and industry- and macroeconomic-specific determinants of SHV creation (measured by the EVA performance indicator which is identical in practise with the RI approach, see the introduction section) for a large sample of European banks between 1998 and 2005 (including Southern European Countries such as Spain, Portugal, Italy, Greece etc.) emphasize that such value factors often have both positive and negative effects on SHV creation. Their most important finding related to this study is the identification of a positive relationship between credit risk taking and SHV – as banks take on more credit risk they also boost their interest revenues. On the contrary, Gross (2006) examines determinants of SHV creation for the German banking sector during the period 1998-2003. The findings suggest that an increase in credit risk taking destroys value while an increase in cost efficiency creates it. The above limited SHV literature is applied at the bank level. To the best of my knowledge, no previous SHV study What explains changes in accounting divisional performance under liquidity shortage conditions? Evidence from the Greek Banking Vol. 16, No. 1 94 has been applied to the branch level and thus on retail banking, focusing at the same time on the simultaneous examination of the impact of credit risk and lending spreads on RI and taking also into account the effects of crisis and loan portfolio characteristics. 3.2 The effect of credit risk and lending spreads on value creation process A bank branch creates value for its shareholders when the return on invested capital is greater than its opportunity cost (Feltham & Ohlson; 1995). A reliable accounting performance indicator is Residual Income (i.e. the difference between the allocated net operating income after taxes and the cost of allocated equity - the product of allocated equity and cost of equity-). According to Dermine (2009), equity allocation at branch level should be based on the risk taken at the branch level (that is essentially credit and operational risk) and to bank regulations on capital. Specifically, the equity employed to each branch is the sum of capital requirements for credit and operational risk according to Basel II capital rules (Gross, 2006; Uyemura et al., 1996). The allocation of income to the branches is implemented through the concept of fund transfer pricing that allows interest income from lending and deposit transactions to be calculated in isolation for each branch (Gross, 2006) Based on earlier shareholder value literature (Fiordelisi & Molyneux, 2010; Gross, 2006), this paper suggests that the credit risk taking activity is expected to have an interesting impact on RI. Also, granting loans with a high spread is considered a valuable driver (Dermine, 2009) for the income structure of the branch. In addition, the study recognizes the impact of crisis on the value effects of the above drivers. Thus, it is realistic to assume that when compared to the growth period that stimulates the influence of positive value factors the crisis hampers the SHV creation process, reducing the dynamic of the specific factors. The net effect (value creation in the growth period vs. value destruction in the crisis period) will finally show the overall contribution of the value determinants. The following arguments shed some insights in this proposition discussing the uncertain impact of our independent variables on RI in a dynamic environment. The effect of higher credit risk on performance appears to be negative because of the relative rise of loan impairments (Athanasoglou et al. 2008; Brissimis et al., 2008; Gross, 2006). Especially in the crisis period, a very high level of loan impairments, and consequently a bad quality of loan portfolio, may seriously threaten the survival of banking institutions. On the contrary, credit risk taking which lends to doubtful customers in terms of creditworthiness at high rates of interest may increase the loan volumes and thus the ability of the institution to generate interest income through market share expansion (Fiordelisi et al. 2011; Salas & Saurina, 2003). In the crisis period, a negative impact of credit risk taking on RI is expected due to the unfavorable economic environment. Accounting and Management Information Systems 95 Vol. 16, No. 1 In addition, profitability derived from lending taking business may be considered as potential value determinant (Dermine, 2010). From this point of view, it is expected that retail branches which charge higher lending spreads (i.e. difference between interest earned on loans before provisions and cost of funding –transfer price-) to their lending customers naturally present a higher value. However, high interest margins maybe hiding a relatively low quality loan portfolio. Such loan portfolios are usually related with higher credit risk in the period of crisis, with negative impact on SHV creation. Moreover, in the crisis period the chances of implementing a successful policy of higher spread seems to decrease due to reducing credit demand. This may be implemented through repricing the existing loan portfolio, especially the credit lines of the small business loan portfolio. In that case, a possible repricing policy might have side effects since the repayment ability of the borrower is decreased while at the same time the loan delays are increased given the negative economic environment. Generally speaking, in a changing environment the uncertain impact of the aforementioned determinants requires that shareholder value creation can only be effectively investigated ex-post by empirical research. 4. Methodology The divisional performance in retail branches, measured by RI (dependent variable), is linked to four independent variables related to interest income earnings and risk taking characteristics for each type of loan (consumer and small business loans). The RI is standardized by equity (RIOE) so that this ratio expresses the shareholder value created for any euro of capital invested by shareholders in the bank branch. A linear panel model is specified to examine the determinants of shareholder value creation. As independent variables, the credit risk (CR) of consumer and small business loans relatively and the net interest spread on consumer and small business loans before provisions (S), are selected. For capturing the effect of value drivers on RI, given that liquidity shortage, a dummy variable d is introduced taking on the value of 1 in the period of the crisis and 0 otherwise. This dummy variable is multiplied separately with each of our four independent variables and thus four more variables included in our model, the coefficients of which show the supplementary impact of each independent variable on the performance in periods of credit crunch. Below is illustrated the fixed-effects model specification assuming constant slope coefficients but intercepts that vary over time or individual branches (Baltagi, 2005). What explains changes in accounting divisional performance under liquidity shortage conditions? Evidence from the Greek Banking Vol. 16, No. 1 96 ititit itit itit itittit uCRsblbSsblb CRcondbScondb CRsblbSsblb CRconbSconbaRIOE     87 65 43 21 **  (1) Where, RIOE = Residual income on equity α = Intercept. i = 1,….. 27 , denoting retail branches. t = 1, …..60 , corresponding months. b1..b11 = constant slope coefficients for independent variables. μi = dummy variable coefficient for each branch i. λt = dummy variable coefficient for each month t. uit = disturbance term varies with branches and time. CRcons= Credit Risk on consumer loans CRsbl= Credit Risk on small business loans Scons = Net interest spread on consumer loans Ssbl = Net interest spread on small business loans d = Indicator dummy variable, 1 for the crisis and 0 otherwise. In the above fixed effects model differences across branches are captured in differences in the constant term μi and differences over time in the constant term of λt. The branch specific effects and period specific effects are assumed fixed parameters to be estimated as coefficients of branch dummies and period dummies for each retail branch and for each period in the sample respectively. The estimations of the above two-way fixed effects specification are corrected for serial correlation and time varying variances in the disturbances by using the White (period) robust coefficient variance method (White, 1980). It is worth noting, that since the study explores the liquidity shortage effects on lending spreads and credit risk quality where there is an exogenous shock to the banking sector, the results are expected to not suffer from endogeneity problems. A possible limitation of the methodology is related with the risk of omitting other significant value drivers such as branch manager’s skills, product diversification etc. However, the use of a panel data model with the incorporation of branch specific fixed effects captures adequately these omitted variables and thus reduces the omitted variable bias. To test the fit of the above fixed-effects model to the data set, several tests are performed. It is worth pointing out that since the paper deals with fixed effects at the branch and year level, the omitted variables bias is reduced. Also, there are no endogeneity issues related to the results given that the paper investigates exogenous shock value effects to the banking industry. As regards the statistical tests (see below Accounting and Management Information Systems 103 Vol. 16, No. 1 internal data of bank branches of a specific banking institution and not be performed across competing banking institutions since the definition of the retail segment considerably varies across banks (Gross, 2006). Obviously, to conduct a comparative study is unrealistic because of the difficulty to get access to more than one bank. Nevertheless, this limitation does not necessarily prevent generalization of findings from a certain case study since strategic players within retail banking industry are basically similar thus their branches are very comparable. Thus, the data set is representative as the Greek banking industry is very oligopolistic and quite homogeneous operating in commercial banking, mainly retail banking. The paper finds that the lending spread earned on consumer and small business loans and credit risk-taking on these loans, are all significantly associated with the RI, but with a different statistical sign. In particular, it is found that the value driver of spread of consumer and small business loans increased RI significantly, confirming the findings of Gross (2006), Fiordelisi and Molyneux (2010) and Dermine (2010). This finding reveals that the effect of higher interest income related to higher spreads for both the small business loan and consumer portfolio seems to over compensate the risk that high interest margins may lead to a decrease on credit quality. Also, the positive effect of the spread of small business loans on RI, was found to be higher than the spread of consumer loans. Regarding the external environmental change effects, the crisis increases even more the positive value effect of the spread of consumer’s loans. However, lending spreads on small business loans lose their dynamic during the crisis period causing a statistical significant reduction in RI. This destructive value effect of lending spreads during the crisis indicates that the adoption of a repricing policy to the small business loans portfolio (i.e. as it explained analytically in the theoretical framework section above) seems to not be the appropriate due to the side effects that repricing loan policy activates. In particular, the credit policy to increase contractual loan rates of credit lines seems to reduce the repayment ability of small business loan borrowers thus exacerbating even more the accumulation of loan loss impairments, given and the unfavorable external environment under which loan delays -by definitionincrease substantially. Regarding the impact of credit risk taking on value creation, it is observed that higher credit risk destroys value for both loan portfolios. This result stands in line with the results of Fiordelisi and Molyneux (2010) and Gross (2006). Moreover, (in the crisis period) the enormous increase of loan loss impairments relative to the income of loans (credit risk) exercises an extra negative impact on RI thus further accelerating shareholder value destruction, for both loan portfolios. Combining the empirical results for both value drivers as regards the consumer loan portfolio, the paper concludes that the crisis increases the positive value effect of the spread factor while increases even more the negative value effect of credit risk due to the unstable economic environment. On the contrary, for the small business loan portfolio, the crisis decreases the generally positive value effect of the spread factor while increases even more the negative value effect of credit risk. On average, the negative What explains changes in accounting divisional performance under liquidity shortage conditions? Evidence from the Greek Banking Vol. 16, No. 1 104 value effect of credit risk for small business loans was higher than consumer loans, (almost doubled), relative to their pre-crisis value effects levels. These differences in the empirical results can be explained by the different strategic policies that two bank business units (i.e. consumer loans business unit and small business loans business unit) followed during crisis in their attempt to minimize the negative consequences of the unfavorable environment. The business unit of consumer loans followed a strategic policy of restructuring immediately its portfolio through securing loans with collateral (reducing in some cases the loan rates), while the small business banking segment followed a different policy through proceeding to an upward repricing of small business loans with low rates, reflecting in this way the higher banks cost funding. Therefore, it is demonstrated that the policy of restructuring directly the loan portfolio held back the expected increase in loan loss provisions for consumer loans (due to loan delays), while at the same time the repricing policy on small business loans resulted in multiple shareholder value destruction through the negative effect of credit risk and lending spread. The study findings have important strategic implications: Firstly, in the crisis period, it appears that the strategic priority for the bank management should be the reorganization of loan portfolios given the negative value impact of credit risk. This finding stresses the importance of setting rules to manage credit risk, hence supporting the post-crisis initiatives taken by policymakers in the EU (European Banking Authority -EBA-, 2014) for the effective management of NPL and arrears, attempting to achieve a single evaluation approach of credit portfolios by European banks. Secondly, the destructive value effect of lending spreads during the crisis indicates that the adoption of a repricing policy to the small business loan’s portfolio is not appropriate and seems to reduce the repayment ability of borrowers. Overall, the empirical findings can have important implications for the assessment of the quality of bank performance and the change of its dynamic in the turbulent crisis environment, for both the bank managers and the policymakers. Given the similarities of the Greek Economy with other bank-driven European economies, the empirical results offer useful lessons to other EU peripheral crisis economies such as Italy, Spain, and Portugal with contiguous banking operations (e.g. pure retail banking) revealing the important role of crisis in the total value creation process. Future research in branch networks of these countries would be of interest in order to check for any possible similarities and differences in the factors that influence shareholder value. Accounting and Management Information Systems 105 Vol. 16, No. 1 References Athanasoglou, P., Brissimis, S. & Delis, M. (2008) “Bank specific, industry specific and macroeconomic determinants of bank profitability”, Journal of International Financial Markets, Institutions and Money, 18: 121-136 Baltagi, B. (2005) Econometric Analysis of Panel Data, 3rd Edition, John Wiley&Sons Bank of Greece (June 2009) Financial Stability Report, Bank of Greece, Athens Bank of Greece (July 2010) Financial Stability Report, Bank of Greece, Athens. Available at: http://www.bankofgreece.gr/BogEkdoseis/fstability201007_en.pdf Bank of Greece, Governor’s Acts No 2588, 2589, 2590, 20/08/2007. Bank of Greece, Athens Beccalli, E., Casu, B. & Girardone, C. (2006) “Efficiency and stock performance in European banking”, Journal of Business Finance and Accounting, 33: 218– 235 Brissimis, S., Delis, M. & Papanikolaou, N. (2008) “Exploring the nexus between banking sector reform and performance: Evidence from newly acceded EU countries”, Journal of Banking and Finance, 32: 2674- 2683 Dermine, J. (2009) Bank Valuation and Value – Based Management, 1st Edition McGraw – Hill Dermine, J. (2010) “Bank valuation with an application to the implicit duration of non-maturing deposits”, International Journal of Banking, Accounting and Finance, vol. 2, no. 1: 1-30 Deville, A. (2009) “Branch Banking Network Assessment Using DEA: A Benchmarking Analysis — A Note”, Management Accounting Research, 20, 252-261 Dietrich, A., & Wanzenried, G. (2011) “Determinants of bank profitability before and during the crisis: Evidence from Switzerland”, Journal of International Financial Markets, Institutions and Money, 21: 307-327 European Banking Authority –EBA-. (February 2014) A final draft: Implementing of technical standards on Supervisory reporting on forbearance and nonperforming exposures under article 99(4) of Regulation (EU) No 575/2013. Available at: https://www.eba.europa.eu/documents/10180/449824/EBAITS-2013-03+Final+draft+ITS+on+Forbearance+and+Nonperforming+exposures.pdf Feltham, G. & Ohlson, J. (1995) “Valuation and Clean Surplus Accounting for Operating and Financial Activities”, Contemporary Accounting Research, vol. 11: 689-731 Fiordelisi, F. (2002) “Shareholder Value and the Clash in Performance Measurement: Are Banks special?”, Working paper at the University of Wales Bangor What explains changes in accounting divisional performance under liquidity shortage conditions? Evidence from the Greek Banking Vol. 16, No. 1 106 Fiordelisi, F. (2007) “Shareholder value efficiency in European banking”, Journal of Banking and Finance, 31: 2151-2171 Fiordelisi, F. & Molyneux, P. (2007) “Value Creation in Banking”, working paper. Available at https://papers.ssrn.com/sol3/papers2.cfm?abstract_id=965441 Fiordelisi, F. & Molyneux P. (2010) “The determinants of shareholder value in European banking”, Journal of Banking and Finance, vol. 35: 1189-1200 Fiordelisi, F., Marquez – Ibanez, D. & Molyneux, P. (2011) “Efficiency and risktaking in European banking”, Journal of Banking and Finance, vol. 35: 1315- 1326 Garcia-Herrero, A., Gavila, S. & Santabarbara, D. (2009) “What explains the low profitability of Chinese banks?”, Journal of Banking and Finance, 33: 2080- 2092 Goddard, J., Molyneux, P. & Wilson, J. (2004) “The profitability of European Banks: a cross sectional and dynamic panel analysis”, The Manchester School, vol. 72: 363-381 Gross, S. (2006) Banks and Shareholder Value. An overview of Bank Valuation and Empirical Evidence on Shareholder value for Banks, 1st Edition DUV Gabler Edition Wissenschaft Hausman, J. (1978) “Specification Tests in Econometrics”, Econometrica, vol. 46:1251 -71 Hsiao, C. (2003) Analysis of Panel Data, 2nd edition, Cambridge Koller, T., Goedhart, M. & Wessels, D. (2005) Measuring and Managing the Value of Companies, 4th edition, Mc Kinsey & Company Lepetit, L., Nys, E., Rous, P. & Tarazi, A. (2008) “Bank income structure and risk: an empirical analysis of European Banks”, Journal of Banking and Finance, vol. 32: 1452-1467 Mundlak, Y. (1978) “On the Pooling of Time Series and Cross Section Data”, Econometrica, vol. 46: 69-85 Salas, V. & Saurina, J. (2003) “Deregulation, market power and risk behavior in Spanish Banks”, European Economic Review, vol. 47: 1061-1075 Uyemura, D., Kantor, C. & Pettit, J. (1996) “EVA for Banks: Value creation, Risk Management and Profitability Measurement”, Journal of Applied Corporate Finance, vol. 9: 94-113 White, H. (1980) “A Heteroskedasticity- Consistent covariance matrix estimator and a direct test for heteroscedasticity”, Econometrica, vol. 48: 817-838 i This adverse environment negatively affected the performance of the Greek banking system. The number of non-performing loans increased gradually from 2008 onwards. In particular, the overall NPL ratio of Greek banks rose to 7.7% in 2009, from 5.0% in 2008 and more than doubled in 2010 from its 2008 levels (Bank of Greece, 2010).