Economic Loan Loss Provision and Expected Loss

The intention of a loan loss provision is the anticipation of the loan's expected losses by adjusting the book value of the loan. Furthermore, this loan loss provision has to be compared to the expected loss according to Basel II and, in the case of a difference, liable equity has to be adjusted. This however assumes that the loan loss provision and the expected loss are based on a similar economic rationale, which is only valid conditionally in current loan loss provisioning methods according to IFRS. Therefore, differences between loan loss provisions and expected losses should only result from different approaches regarding the parameter estimation within each model and not due to different assumptions regarding the outcome of the model. The provisioning and accounting model developed in this paper overcomes the before-mentioned shortcomings and is consistent with an economic rationale of expected losses. Additionally, this model is based on a close-to-market valuation of the loan that is in favor of the basic idea of IFRS. Suggestions for changes in current accounting and capital requirement rules are provided.

Knowledge Exchange in Intra-Organizational Innovation Communities: The Role of Cognitive and Affective States

Many aspects in the area of designing platforms for intra-organizational innovation communities are not well understood. In this article, we examine the impact of technologically induced psychological factors on knowledge exchange in such communities. Using two experimental pretest-posttest experiments, we find that the implementation of (i) technologically induced self-efficacy (expressed by a ‘hurray’ message) and (ii) technologically induced positive affect (expressed by playing some 30 seconds of rock-‘n’-roll music) in the design of the platform results in an influential increase of knowledge exchange. Importantly, the studies suggest that the integration of technologically induced self-efficacy leads to a higher extent of knowledge exchange than technologically induced positive affect. The implications of these results for future research and practice as well as for the design of a platform for such communities are discussed.