Information Content of Aggregate Loan Loss Provisions

I examine the information content of aggregate loan loss provisions by regressing corporate bond market returns and asset-backed securities returns on changes in aggregate loan loss provisions. I nd that changes in aggregate loan loss provisions are negatively and signicantly related to market returns. I also nd that the aggregate returns-provisions relation is more negative during recessionary periods, for banks with high concentration in certain loan categories, for geographically diversied banks, and for banks with timely loan loss provisions. My results are consistent with the hypothesis that aggregate loan loss provisions are value relevant because they capture economy-wide changes in credit risk.