scholarly journals Regulatory risk disclosure in the banking industry: a scoring model approach

2021 ◽  
Author(s):  
◽  
Johannes Hofinger
Keyword(s):  
Agency Theory ◽  
Banking Industry ◽  
Basel Iii ◽  
Risk Disclosure ◽  
Disclosure Quality ◽  
High Quality ◽  
Scoring Model ◽  
Risk Disclosures ◽  
Crd Iv

Banks communicate their regulatory risk exposures through disclosure reports to market participants. These reports are based on the Basel III Pillar 3 guidelines, implemented in the European Union in form of the Capital Requirements Directive and Regulation (CRD IV/CRR). Agency theory views such disclosures as one viable option to reduce the information asymmetry between the banks’ managers and investors. Also, high-quality risk disclosures can strengthen the competitive position of banks through lower cost of capital and higher stock liquidity. It is therefore in the interest of banks to prepare high-quality disclosures and evaluate current disclosure practices. This thesis proposes a scoring model that measures the quality of bank regulatory risk disclosures and thereby supports banks and their stakeholders in their decision-making process on risk communication. The model builds on a two-dimensional framework including 1) a risk dimension comprising credit risk, market risk, operational risk, other risks including liquidity risk, and risk management in general; and 2) a quality dimension covering the criteria readability, comprehensiveness, meaningfulness, time comparability, and sector comparability. The quality criteria are operationalised and applied to the risk categories to facilitate the calculation of composite disclosure scores for regulatory risk disclosure reports of a sample of thirty large European-headquartered banks for the period 2016 to 2018. Prior research shows that disclosure quality depends on both qualitative and quantitative elements. Therefore, a multi-methods approach is applied in this thesis to build the scoring model based on a pragmatic research philosophy. In the research design, qualitative elements are captured with semantic content analysis, while quantitative elements are explored using factor analysis. The calculation of composite disclosure scores results in an average composite disclosure score of 3.86 (out of a maximum of 5) with a spread of about 20% to both sides. The analysis finds that reading difficulty across individual disclosure reports is generally very high, disclosure quantity varies substantially, banks are reluctant to provide forward-looking information, and only few information on time and sector comparability is included. This, therefore, makes it difficult for different stakeholders to benefit from bank disclosure reports and leaves ample space for banks to improve on their risk communication. The main academic contribution of this thesis is the development of a scoring model that captures the quality of regulatory risk disclosures in the EU banking industry. Such a practice-based model does not yet exist and has long been called for in prior literature. This research also introduces a comprehensive word-based approach that is an adequate proxy for measuring disclosure quality. Finally, the thesis adds to the understanding of how the term “information content” is interpreted differently across EU banks in the context of agency theory. 4 For the professional contribution, the proposed scoring model enables banks to analyse their current disclosure practices and points them to areas for improvements. Supervisory authorities and analyst houses also benefit from the scoring model through a more efficient and effective analysis of disclosure reports. Finally, consultancies and software firms can benefit from such a model to expand their offerings on business intelligence. JEL classification: M48 (Government Policy and Regulation) Keywords: Banking risk reporting; Regulation; Disclosure; Basel III Pillar 3; CRD IV/CRR; Quality scoring model.

scholarly journals The Quality of Mandatory Non-Financial (Risk) Disclosures: The Moderating Role of Audit Firm and Partner Characteristics

2021 ◽  
pp. 2150008
Author(s):  
Saverio Bozzolan ◽  
Antti Miihkinen
Keyword(s):  
Financial Risk ◽  
Risk Disclosure ◽  
Disclosure Quality ◽  
Audit Firm ◽  
Big 4 ◽  
Partner Characteristics ◽  
And Gender ◽  
Risk Disclosures

Risk disclosures are among the most important types of non-financial information valued by the investors. Risk disclosures are mostly narrative and proprietary in nature; consequently, their accuracy and assurance are highly important to prevent disclosures from becoming boilerplate and losing their relevance. By exploiting the unique features of a setting where risk disclosure is mandatory and under a positive assurance requirement, we investigate whether the quality of audited risk disclosures is associated with the type of audit firm (Big-4 versus non-Big-4), the characteristics of the audit firm, and the attributes of the audit partner. Our results show an association between risk disclosure quality and auditors, but not in the expected ways. After the enforcement of a regulation requiring a detailed description of risks in the Operating and Financial Review (OFR) and a positive assurance of external audit over these disclosures, we do not document any significant Big-4 effect. The quality of risk disclosures is associated with the attributes of the audit partner, namely, familiarity with different client risk disclosures, industry expertise, and gender, independently of an affiliation with a Big-4 audit firm. Along these lines, we extend recent evidence on the audit partner effects in the assurance of non-financial narrative information.

scholarly journals A study of the impact of information disclosure quality on the efficiency of corporate investment—Based on civil engineering listed companies

2020 ◽  
Vol 198 ◽  
pp. 03032
Author(s):  
Liying Zhang
Keyword(s):  
Life Cycle ◽  
Civil Engineering ◽  
Listed Companies ◽  
Investment Efficiency ◽  
Disclosure Quality ◽  
High Quality ◽  
Life Cycle Stages ◽  
Quality Disclosure ◽  
The Impact

Most of the existing studies on the impact of disclosure quality of listed companies on the investment efficiency of enterprises are based on the static level, and the article investigates the evolution of disclosure quality on the investment efficiency of enterprises from the dynamic level by dividing the life cycle of enterprises. Taking the data of Shenzhen civil engineering companies from 2013-2017 as the research sample, it uses multiple regression analysis to empirically test the impact of disclosure quality of listed companies on the investment efficiency of enterprises at different life cycle stages. The results show that when no distinction is made between life cycle stages, high quality disclosure can significantly inhibit the inefficient investment behavior of firms; in the growth and maturity samples, high quality disclosure can significantly inhibit underinvestment and overinvestment; in the recessionary samples, high quality disclosure can significantly inhibit underinvestment and has no significant effect on overinvestment.

Classifying the Contents of Cybersecurity Risk Disclosure through Textual Analysis and Factor Analysis

2020 ◽  
Author(s):  
Arion Cheong ◽  
Kyunghee Yoon ◽  
Soohyun Cho ◽  
Won Gyun No
Keyword(s):  
Factor Analysis ◽  
Internal Control ◽  
Textual Analysis ◽  
Quantitative Methodology ◽  
Risk Disclosure ◽  
Related Factors ◽  
Negative Effect ◽  
Internal Control Weaknesses ◽  
Risk Disclosures

Cybersecurity has garnered much attention due to the increasing frequency and cost of cybersecurity incidents in recent years and become a significant concern for organizations and governments. Regulators such as the Security and Exchange Commission (SEC) have also shown an interest in cybersecurity and the quality of cybersecurity risk disclosures. This paper examines the informativeness of cybersecurity risk disclosures when cybersecurity incidents or related internal control weaknesses are reported. In particular, we propose a quantitative methodology, which is a combination of textual analysis and factor analysis, for classifying cybersecurity risk disclosures into nine factors. Our results show different disclosing patterns among firms depending on whether they had cybersecurity incidents and internal control weaknesses. Further, our analysis indicates that firms disclose control-related factors to mediate the negative effect of disclosing vulnerability-related factors. This study provides various stakeholders, including investors, regulators, and researchers, with insight into the informativeness of cybersecurity risk disclosures.

scholarly journals Risk Disclosure Patterns among Jordanian Companies: An Exploratory Study during Covid-19 Pandemic

2020 ◽  
Vol 9 (3) ◽  
pp. 69
Author(s):  
Fawzi Ata Al-Sawalqa
Keyword(s):  
Board Of Directors ◽  
Exploratory Study ◽  
Critical Time ◽  
Extraction Process ◽  
Risk Disclosure ◽  
Entire Study ◽  
Operational Activities ◽  
Risk Disclosures ◽  
Disclosure Patterns

This current exploratory study comes at a critical time to determine the risk disclosure pattern of Jordanian companies during Covid-19 pandemic in response to the request of JSC for Jordanian listed companies to prepare and send disclosure reports include the effect of Covid-19 pandemic on their activities in terms of material events, operational activities and the decisions of board of directors during the period of disclosure suspension extending from March 18, 2020 to May 5, 2020. Based on all the non-financial companies that listed in the first market, the results of the study indicated that the entire study sample (100%) did send the disclosure reports to JSC. In terms of the quality of disclosed risks, extraction process resulted in finding 20 risk items distributed over 5 categories. The results show that the average disclosure level is 65.6%, with the operational category ranked first and followed by investor relation category, financial category, strategic category and finally the market category. Results show that those sectors that were suspended completely during Covid-19 pandemic provided risk disclosures in all categories and vice versa. In addition to the several implications, the study offers many avenues for future study based on the risk disclosure model of the current study.

scholarly journals Determinants and impacts of risk disclosure quality: evidence from China

2018 ◽  
Vol 19 (4) ◽  
pp. 518-536 ◽  
Author(s):  
Tamer Elshandidy ◽  
Lorenzo Neri ◽  
Yingxi Guo
Keyword(s):  
Content Analysis ◽  
Ordinary Least Squares ◽  
Market Liquidity ◽  
Risk Disclosure ◽  
Disclosure Quality ◽  
Content Type ◽  
Financial Firms ◽  
The Impact ◽  
Risk Reporting

PurposeFew studies have focused on emerging markets owing to difficulties in identifying the real effect of disclosures on these economies. To fill this gap, the purpose of this paper is to first: investigate the main drivers for risk disclosure quality for Chinese financial firms, second: further study the impact of such disclosure on market liquidity.Design/methodology/approachThe sample comprises all financial firms listed in the Shanghai A-shares market for the period 2013–2015. By relying on manual content analysis of annual reports, the risk disclosure quality is measured through a multidimensional approach which encompasses three factors: quantity of disclosure, coverage of disclosure and the semantic properties of depth and outlook. The findings of this paper are based on ordinary least squares and fixed-effects estimations.FindingsThe findings suggest that firm characteristics (especially size) influence risk disclosure practices of Chinese financial companies. Furthermore, the authors found that risk disclosure quality has an impact on market liquidity, and when the authors analysed each year the authors noticed that the results were driven by the year 2013; moreover, the authors noticed no or little significance from the period of the emerging financial crisis.Research limitations/implicationsThe sample of this paper is limited to financial firms in China. The usage of manual content analysis limits the authors’ ability to investigate risk reporting drivers and its impact on market liquidity on a large scale.Practical implicationsThe importance of this paper stems from documenting several reporting incentives concerning not only firms’ quantity, but also firms’ quality of risk reporting. Collectively, the findings support activism for reforms and the enhancement of regulations in China in order to make the market more efficient.Originality/valueThis paper provides new evidence for financial companies in China on the principal drivers for risk disclosure quality and highlights how the quality of such disclosure impacts market liquidity. Furthermore, this paper confirms previous findings on the Chinese market (Ball et al., 2000; Zou and Adams, 2008) in which, given a decreasing but still strong state presence, there is higher stock volatility and weak corporate governance.

scholarly journals Corporate Governance and Risk Disclosures: A Comparative Analysis Between Bangladeshi and Malaysian Islamic Banks

2019 ◽  
Vol 10 (5) ◽  
pp. 110
Author(s):  
Mohammad Rokibul Kabir ◽  
Farid A. Sobhani ◽  
Normah Omar ◽  
Norazida Mohamad
Keyword(s):  
Corporate Governance ◽  
Profit Sharing ◽  
Annual Reports ◽  
Islamic Banking ◽  
Islamic Banks ◽  
Risk Disclosure ◽  
Corporate Governance Mechanisms ◽  
Analysis Technique ◽  
Risk Disclosures

Corporate governance provides a fundamental framework to oversee corporate conduct and ensures transparency of institutions like banks. In case of Islamic banks, it adds additional importance as the profit sharing (with the depositors) system enhances the chance of agency problem for such institutions. Again, risks are inherent in institutions like Islamic banks, which necessitate the investors to get proper information about the risk encountered by the banks in which they invest. Thus, corporate governance and risk disclosures bear utmost importance. Since Malaysian banking industry has already experienced a favorable growth of Islamic banking and Bangladesh is observing a rapid growth of popularity of Islamic banking, a comparative study has been undertaken between Malaysian and Bangladeshi Islamic banks regarding corporate governance and risk disclosures in annual reports. Content analysis technique has been applied to facilitate the comparison. Both quantity and quality of risk reporting of the sample companies have been evaluated. A corporate governance disclosure index has been developed by following the guidelines provided by Bangladesh Security and Exchange Commission (BSEC) and the principles laid down in the ‘Guidelines on Corporate Governance for Licensed Islamic Banks in Malaysia’ to explore and compare the degree of good corporate governance and relevant disclosures in the annual reports. It is hypothesized that corporate governance and risk disclosure will vary between Malaysian and Bangladeshi Islamic Banks. It is also argued that the corporate risk disclosures will be positively associated with the quality of the firm’s corporate governance mechanisms. Results are generally supportive of hypotheses. At the end, implications for theory and practices are discussed in the study.

scholarly journals Readability of Operational Risk Disclosures of Banks

2019 ◽  
Vol 14 (3) ◽  
pp. 108-116 ◽  
Author(s):  
Mocanu Mihaela ◽  
Grose Christos ◽  
Kargidis Theodoros
Keyword(s):  
Financial Institutions ◽  
Commercial Banks ◽  
Textual Analysis ◽  
Banking System ◽  
Operational Risk ◽  
Risk Disclosure ◽  
Financial Firms ◽  
Risk Disclosures ◽  
Technical Terms

AbstractOperational risk has been acknowledged as a major source of material failures in financial firms. Despite the increased concern of financial institutions and their stakeholders on this topic, the literature that deals specifically with the operational risk disclosure in the banking system is scarce. The present research investigates the readability in transparency reports of Romanian banks, and focuses in particular on the operational risk disclosures. The sample consists of 13 commercial banks operating in Romania in 2017. A concise transparency report is characterized by clarity in the expression of concepts, usage of as few words as possible, limited use of technical terms and avoidance of highly generic disclosures. Drawing upon prior research, we expect that banks with lower levels of performance are foggier (i.e. less concise) in order to improve the image resulting from their transparency reports. Additionally, it is expected that the longer an entity has been established, the higher the quality of disclosures, thus the transparency reports of older banks are more concise compared to the recently established banks. Moreover, we posit that larger banks are more likely to provide more readable reports. The research is part of the larger debate related to disclosure and its various impacts on both the recipient and the giver of information. The main contribution is the innovative approach consisting in the textual analysis of transparency risk reports. To the best of our knowledge, we are not aware of any study that examined conciseness in the setting of operational risk disclosure by banks.

scholarly journals Evaluasi Kualitas Pengungkapan Value at Risk Perbankan Indonesia

2019 ◽  
pp. 276
Author(s):  
Buddi Wibowo ◽  
Hasna Fadhila
Keyword(s):  
At Risk ◽  
Value At Risk ◽  
Simulation Method ◽  
Market Risk ◽  
Risk Measurement ◽  
Risk Level ◽  
Risk Disclosure ◽  
Historical Simulation ◽  
Risk Disclosures

Market risk measurement of bank investment portfolios is a still problem not only among practitioners, but  also among academicians. The accuracy and quality of market risk disclosures are important issues because  transparency of the bank risk level encourages market control in the form of market discipline and it also  improve the quality of risk management carried out internally by the bank. This research measures the quality of Value at Risk disclosures carried out by Indonesian banks. The accuracy of Value at Risk in this research is measured from the Value at Risk component which contains information of yield volatility of bank trading treasury activities. To measure Value at Risk disclosure, this research runs various methods of Value at Risk measurement. This research shows Historical Simulation is a Value at Risk method that is most widely used by Indonesia banks. The empirical test results show that the Value at Risk parametric method using asymmetric volatility have better quality than the Value at Risk Historical Simulation method. This research shows that Value at Risk as measured by Historical Simulation method contains the least information of bank trading treasury yields. Keywords: value at risk; disclosure; market risk; volatility

scholarly journals Corporate governance and risk disclosure quality: Tunisian evidence

2019 ◽  
Vol 9 (4) ◽  
pp. 567-602 ◽  
Author(s):  
Issal Haj Salem ◽  
Salma Damak Ayadi ◽  
Khaled Hussainey
Keyword(s):  
Corporate Governance ◽  
Audit Committee ◽  
Annual Reports ◽  
Risk Disclosure ◽  
Disclosure Quality ◽  
Governance Mechanisms ◽  
Content Type ◽  
Corporate Governance Mechanisms ◽  
The Impact

Purpose The purpose of this paper is to investigate the potential influence of corporate governance mechanisms on risk disclosure quality in Tunisia. Design/methodology/approach The authors examine 152 annual reports of Tunisian non-financial-listed firms during 2008–2013, and use the manual content analysis method to measure the risk disclosure quality. Findings The authors find that the quality of risk disclosure in Tunisian companies is relatively low, and also find that the quality of risk disclosure is positively associated with institutional ownership, board independence, the presence of women on the board, the presence of family members on the board and the independence of audit committee. Managerial ownership has a negative effect on risk disclosure quality. Finally, the authors find that the revolution decreases the influence of concentration ownership, government ownership, family ownership and audit committee size on risk disclosure quality. Originality/value Using a comprehensive set of corporate governance mechanisms and a new measure for risk disclosure quality in Tunisia, the authors provide the first empirical evidence on the impact of corporate governance mechanisms on risk disclosure quality in a developing country. The study has theoretical and practical implications for both developed and developing countries.

scholarly journals Does Structural Capital Affect SDGs Risk-Related Disclosure Quality? An Empirical Investigation of Italian Large Listed Companies

2020 ◽  
Vol 12 (5) ◽  
pp. 1776 ◽  
Author(s):  
Francesco De Luca ◽  
Andrea Cardoni ◽  
Ho-Tan-Phat Phan ◽  
Evgeniia Kiseleva
Keyword(s):  
Positive Association ◽  
Specific Reference ◽  
Risk Disclosure ◽  
Disclosure Quality ◽  
Environmental Disclosure ◽  
Nonfinancial Information ◽  
Related Information ◽  
Structural Capital ◽  
Risk Reporting

In a context of widespread acceptance and implementation of the United Nations Sustainable Development Goals (SDGs), this paper discusses the possible relationship between intellectual capital (IC) and nonfinancial information (NFI), particularly related to SDGs and corporate social responsibility (CSR) in a stakeholder engagement perspective. Prior studies called for further investigation about nonfinancial risk disclosure and claimed that companies mandated to disclose risk-related information tend to focus mainly on financial risks. Therefore, given the growing attention of regulators to the content of mandatory companies’ NFI brought to the Directive 2014/95/EU, this study intends to contribute to fill this literature gap by investigating the drivers of risk-related disclosure quality (RDQ) and to what extent it could be affected by the structural capital (SC), as one of the components of IC. The empirical analysis is based on a sample made of 51 Italian large undertakings and groups. The study uses content analysis to assess the RDQ from firms’ corporate reports. Regression analysis is used to examine if there is an influence of SC toward RDQ, both considered as a single information package and with specific reference to environmental disclosure. Results reveal that a positive association exists between RDQ and SC. Moreover, it is providing some support for the positive correlation between SC and the firm’s size. In this sense, the paper contributes to existing risk reporting literature as a pioneering study identifying an IC driver to determine the quality of risk and risk management information. For regulators, this study highlights how, in a context of mandatory disclosure, the quality of information could also depend on firm characteristics (SC). For practitioners, the paper helps in understanding the role of IC in order to increase the quality of the corporate risk reporting.

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