Bank Liquidity Risk: Significance of Financial Disclosure and Governance Practice

Abstract

The objective of the study is to show the remedial effect of bank liquidity risk in the marketplace by disseminating financial information and practicing corporate governance mechanisms. The link between financial disclosure, corporate governance, and banks' liquidity risk management in Bangladesh is examined in this paper. The study used panel data on 32 commercial banks from the 2008 to 2018 with 346 observations collected from published annual reports. Based on the preliminary diagnosis, the study chose the two-stage least squares (2SLS) regression method to minimize the errors arising from heteroskedasticity, autocorrelation, and endogeneity issues. The study found that adequate financial disclosure and corporate governance practices minimize bank liquidity risk to maintain a stable image in the minds of investors and withstand immense regulatory pressure. To allow banks to detect issues early, they must implement changes quickly and be more robust to crises, thus risk management efficacy and excellent corporate governance implementation are required. Moreover, banks are mainly concerned about liquidity risk as it directly affects the market's performance and stability. Liquidity crises can be eradicated by proper monitoring and providing information pertaining to risks to prudent investors in a reliable and transparent corporate culture.