Bank Income Smoothing, Societal Patriarchy and Policy Uncertainty

ABSTRACT Using a sample of 745 banks from 26 OECD countries over the period 1997–2023, we investigate the moderating effects of societal patriarchy on bank income smoothing (IS), amidst policy uncertainty (PU). Results indicate that in periods of high PU, banks operating in highly patriarchal societies tend to curtail the use of loan loss provisions (LLP) to smooth their income. Specifically, the moderating effect of patriarchy is attenuated in a low uncertainty environment, while in periods of financial crisis marked by high uncertainty, income smoothing rises dramatically. Moreover, better governance frameworks tend to limit income smoothing behaviour in banks, highlighting the significance of robust monitoring and governance. Our results survive the Placebo test, GMM estimation and instrument variable analysis, hence remain robust to concerns of endogeneity and reverse causality.