Does Risk Disclosure Reporting Quality Reduce Credit Risk?

Corporate Risk Disclosure of Islamic and Conventional Banks

This study examines the degree of the corporate risk disclosure and its impact on the banking performance using annual data of banks listed on the UAE financial markets: Abu Dhabi Stock Exchange (ADX) and Dubai Financial Market (DFM) during the period 2003–2013. The authors conduct the content analysis of the annual reports to measure the degree of the corporate risk disclosure. In addition, they use the panel data regressions to analyze the impact of the corporate risk disclosure on the performance of the banks. The results show low degree of the overall corporate risk disclosure index, strategic risk disclosure index, operational risk disclosure index, damage risk disclosure index, and risk management disclosure index for UAE listed banks. In addition, the results reveal significant differences in the overall corporate risk disclosure, strategic risk disclosure, financial risk disclosure, and risk management disclosure between conventional and Islamic banks. However, the effect of the degree of the overall corporate risk disclosure on the performance of UAE bank has been found insignificant. The findings of this paper contribute by providing a better understanding of risk disclosure practices in UAE and help the banks to optimally disclose their risk, improve the quality of their disclosure practices and enhance the quality of their financial reports. The impact of the corporate risk disclosure on the performance of the banks has not been examined by any of the prior researches. In addition, this paper examines the potential difference between Islamic and conventional banks in their corporate risk disclosure practices.

This study measures the degree of corporate risk disclosure and examines its impact on the credit risk of banks listed on the GCC financial markets during the period 2007–2021. The results of the content analysis show a low degree of overall risk disclosure index and sub-risk categories, except for financial risk disclosure, for all GCC-listed banks. The effect of the degree of risk disclosure on credit risk is examined by applying a robust generalized method of moment system estimation (GMM) to dynamic panel data. The results of the GMM show that the impact of disclosures of strategic risk, operational risk, financial risk, damage risk, and risk management vary from one country to another, but overall, they are positively associated with the financial stability of all GCC-listed banks. In terms of comparison, the results show overall significant differences in credit risk, strategic risk disclosure, operational risk disclosure, operational risk disclosure, firms’ damage risk disclosure, and risk management disclosure between conventional and Islamic banks as well across GCC countries.

Does Operational Risk Disclosure Quality Increase Operating Cash Flow of UAE Islamic and Conventional Banks?

Purpose The purpose of this paper is to examine the association between the level of risk disclosure (RD) and ESG disclosure of non-financial firms listed in Abu Dhabi Stock Exchange (ADX) and Dubai Financial Market (DFM), using Refinitiv Financial Solutions Database that concurs with increased legislation and increased public awareness of ESG issues. Design/methodology/approach For this research, data were collected from 44 non-financial listed firms using content analysis to estimate the level of RD. ESG data were extracted from the Refinitiv Financial Solutions Database. This study observed these firms over the period from 2018 to 2023. An ordered logit model was employed to estimate the model. Findings The research findings show: First, RD increased considerably from 2018 to 2021 as a result of the socio-economic circumstances caused by the COVID-19 pandemic. However, it decreased in 2022 and 2023. Second, the highest average ESG performance rating is observed in the logistics sector, while the lowest ESG performance ratings are observed in the transportation and construction sectors; the average industry ESG rating scale is “C”. Third, firms with higher ESG rating scales report more risk-related information in their annual reports. Fourth, financially performant firms and younger firms demonstrate better corporate governance ratings. Practical implications The findings have important policy implications, particularly for UAE regulators to strengthen ESG disclosure regulations and develop mandatory sustainability reporting frameworks aligned with international standards to enhance corporate transparency and accountability. Originality/value This paper offers significant practical and theoretical contributions. Practically, it provides UAE policymakers and regulators with evidence-based insights into current risk and ESG disclosure practices, enabling them to develop targeted frameworks that enhance corporate transparency and align with international standards. The findings also guide practitioners in improving their disclosure strategies to meet stakeholder and regulatory expectations. Theoretically, this is the first study to examine the association between RD and ESG disclosure using an ESG rating scale in the UAE market. It advances legitimacy and stakeholder theories by demonstrating how firms use integrated disclosure to manage stakeholder pressures in emerging markets. The research provides a foundation for future scholars investigating sustainability reporting in developing economies, particularly in the understudied GCC region.

PurposeThis study aims to examine the effect of risk disclosure (RD) on commercial banks’ credit rating (CR) in the context of Bangladesh. It also explores the factors influencing RD in both Islamic and conventional banks.Design/methodology/approachThe sample includes 200 bank-year observations consisting of 20 commercial banks (15 conventional and 5 Islamic banks) from 2010 to 2019. The sample is further segregated into Islamic and conventional banks. Ordered logit and random effect ordinary least square models are used to analyze the data. Furthermore, the two-stage least squares approach is used to perform a robustness test.FindingsThis study shows that RD significantly positively impacts CR, with a stronger effect in Islamic banks than in conventional banks. This study also finds that banks’ age and leverage negatively influence CRs. Moreover, banks’ size and total capital have a positive and negative influence on CRs, respectively. This study also shows that the age of Islamic and conventional banks positively and negatively influences the RD scores, respectively. In contrast, the RD score of conventional banks is positively impacted by bank size.Practical implicationsBy examining which variables substantially impact RD and, hence, CR scores, bank stakeholders may make better financing, investment and other policy decisions. Investors may choose stocks with a high level of RD in the annual reports as the earlier studies imply that higher RD enhances CR.Originality/valueOnly a few studies have examined the relationship between RD and CRs, while, to the best of the authors’ knowledge, this study is the maiden attempt in the Bangladesh context. This study also compares the link between Islamic and conventional banks.

Purpose – This study aims to explore the extent of risk disclosure (RD) among conventional banks (CBs) and Islamic banks (IBs) listed on stock markets in the Gulf cooperation council (GCC). It also examines the influence of RD on the banks’ financial performance as measured by return on assets (ROA) and return on equity (ROE). Design/methodology/approach – This study uses content analysis to examine RD in the annual reports of 16 CBs and 14 IBs in the GCC for a sample of 240 firm-year observations over the period 2007 to 2014. Findings – The study shows no significant differences between the RD reported in the annual reports of CBs and that of IBs. On average, a CB reported 234 sentences while an IB disclosed 244 sentences of RD in its annual report. The authors also find that both types of banks had an upward trend over the periods. While the means of RD reported by CBs have significantly improved over the period, the RD reported by IBs has not. Similar results are also found when the authors compared the RD pre- and post-financial crisis period. Finally, the authors find that there is a significant association between RD and both models of financial performance (ROA and ROE) for IBs, after controlling other variables. However, RD has a significant association with only ROE for CBs. Research limitations/implications – The bank selection was restricted to publicly traded banks in the GCC. Other financial institutions and different types of industries were not considered. Further research could determine whether the results obtained in this study could be generalized to different industries in the GCC and or in other countries. Practical implications – This study provides evidence on the significant association between RD and the financial performance of CBs and IBs in GCC countries. This study could be helpful to regulatory authorities in encouraging banks to adopt the best practice of RD and thus promote banks’ transparency. Originality/value – This is the first known study to examine the RD practices of both types of banks and their association with banks’ financial performance in five-GCC countries (Kuwait, Qatar, Saudi Arabia, United Arab Emirates and Bahrain), based on a longitudinal analysis of year-end annual reports, covering eight years period from 2007 to 2014.

PurposeThis study aims to explore the extent of risk disclosure (RD) among conventional banks (CBs) and Islamic banks (IBs) listed on stock markets in the Gulf cooperation council (GCC). It also examines the influence of RD on the banks’ financial performance as measured by return on assets (ROA) and return on equity (ROE).Design/methodology/approachThis study uses content analysis to examine RD in the annual reports of 16 CBs and 14 IBs in the GCC for a sample of 240 firm-year observations over the period 2007 to 2014.FindingsThe study shows no significant differences between the RD reported in the annual reports of CBs and that of IBs. On average, a CB reported 234 sentences while an IB disclosed 244 sentences of RD in its annual report. The authors also find that both types of banks had an upward trend over the periods. While the means of RD reported by CBs have significantly improved over the period, the RD reported by IBs has not. Similar results are also found when the authors compared the RD pre- and post-financial crisis period. Finally, the authors find that there is a significant association between RD and both models of financial performance (ROA and ROE) for IBs, after controlling other variables. However, RD has a significant association with only ROE for CBs.Research limitations/implicationsThe bank selection was restricted to publicly traded banks in the GCC. Other financial institutions and different types of industries were not considered. Further research could determine whether the results obtained in this study could be generalized to different industries in the GCC and or in other countries.Practical implicationsThis study provides evidence on the significant association between RD and the financial performance of CBs and IBs in GCC countries. This study could be helpful to regulatory authorities in encouraging banks to adopt the best practice of RD and thus promote banks’ transparency.Originality/valueThis is the first known study to examine the RD practices of both types of banks and their association with banks’ financial performance in five-GCC countries (Kuwait, Qatar, Saudi Arabia, United Arab Emirates and Bahrain), based on a longitudinal analysis of year-end annual reports, covering eight years period from 2007 to 2014.

This study aims to measure the risk disclosure level in Egyptian banks and to investigate its determinants. The sample consisted of 28 banks during the period from 2010 to 2017. An unweighted risk disclosure index including six categories was used: credit risk, market risk, liquidity risk, capital structure and adequacy risk, operational risk, and other non-financial risks. Also, a content analysis approach was used to measure the actual level of risk disclosure. The findings demonstrated that there was an average level of total risk disclosure of all sample banks. The results showed that banks with a higher percentage of independent board membership, large board size, large audit committee size, duality, higher institutional ownership, and banks audited by one of big four audit firms were more motivated to increase risk disclosure. Also, the results showed that leverage, bad news, and bank social responsibility have a negative relationship with the level of risk disclosure. Overall, the results indicated that leverage, board size, audit committee size, auditor types, independence, duality, institutional ownership, bank social responsibility, and bad news are the main factors affecting the level of risk disclosure in Egyptian banks. The findings of this paper have a number of important implications. The risk disclosure in the banking sector is important for stakeholders such as investors and depositors. Also, risk disclosure index helps the regulatory bodies to evaluate the risk disclosure practice in Egyptian banks. This paper contributes to analyzing factors affecting banks managers’ decision to disclose risk information in emerging countries such as Egypt.

The study sought to determine how bank financial performance (BFP) was affected by credit risk (CR), liquidity risks (LR), operational risks (OR), financing risks (FR), market risks (MR), in the presence of risk management (RM) as a moderator in conventional and Islamic banks in the Middle East and North Africa. To this end, stratified random sampling and systematic sampling methods were used, with a sample size of thirty conventional banks and thirty Islamic banks from the Kingdom of Saudi Arabia and the Arab Republic of Egypt acting as the unit of analysis. 344 participants that were targeted had completed questionnaires that could be analyzed. The database of the target banks was used to quickly and affordably choose samples. Structural equation modeling was done in conjunction with a tool named Smart PLS 4 (SEM). A 92% reliability coefficient was used to evaluate the instrument's dependability. By assessing study variables using commonly used terminology and consulting with subject matter experts on the research issue, the content validity of the findings was confirmed. PLS 4 was one of the clever analytical approaches used to characterize the study's findings. The following describes the relationship between risk management practices and BFP when utilizing a modified variable (RM): "The study showed that CR does not positively affect BFP in conventional banks when employing a modified RM variable. The study demonstrated that the risk ratio had no positive influence on BFP in Islamic banks using a modified RM variable. It has been established by study that LR has no positive impact on BFP. The study also demonstrated that the LR has no positive effects when the variable RM rate is used in conventional banks. The study's findings demonstrated that the OR does not change when the variable RM rate is used. It is advantageous for BFP in traditional banks. The study discovered that there is a negative correlation between OR and BFP in Islamic banks and that OR has no beneficial effect on BFP when the RM rate variable is included. The study's findings demonstrated a favorable correlation between OR and BFP. The research indicates that in typical banks, FR does not positively increase BFP when employing the adjusted RM variable. The study discovered that there is no correlation between FR and BFP in Islamic banks when the modified RM variable is used. Rather than suggesting a good association between FR and BFP, the results pointed to a negative investigation.

This thesis investigates several aspects concerning the financial stability of Islamic and conventional banks. This is important because the strong growth of Islamic banking, notwithstanding their marked uniqueness in operational and financing behaviour, combined with fierce global competition with the prevailing conventional bank system, raises concerns among regulators and practitioners about the long-run sustainability of Islamic banking. First, the thesis compares the level of financial stability in Islamic and conventional banks using three different methods of credit risk measurement. Second, it compares the effect of competition on stability across Islamic and conventional banks. Finally, it investigates whether efficiency significantly modulates the linkage between competition and stability in both Islamic and conventional banks. In the first research question, the thesis considers the levels of credit risk in Islamic and conventional banks, for which existing literature finds no conclusive result. One problem with existing studies is the use of accounting information alone to assess credit risk and this could be especially misleading with Islamic banking. Using a market-based credit risk measure, namely, Merton’s distance-to-default (DD) model, we evaluate the credit risk of 156 conventional and 37 Islamic banks across 13 countries between 2000 and 2012. We also calculate the accounting information-based Z-score and nonperforming loan (NPL) ratio for the purpose of comparison. The results show that Islamic banks have significantly lower credit risk than conventional banks as based on DD. In contrast, and as expected, Islamic banks display much higher credit risk using the Z-score and NPL ratio. These findings suggest that the measure chosen plays a significant role in assessing the actual credit risk of Islamic banks.

This study explores the influence of risk disclosure levels and types on the readability of annual reports of non-financial firms in the UK during the COVID-19 outbreak. It further investigates how the disclosure of COVID-19-related information moderates the relationship between risk disclosure and readability. The study uses a content analysis approach and CFIE software to measure the level of risk disclosure and readability in the annual reports of non-financial firms listed on the FTSE all-share from 2019 to 2021. The results show a positive and significant effect of risk disclosure level on readability, which is stronger for firms that disclosed COVID-19 information. Different types of risk disclosure have varying effects on readability, with COVID-19 risk, credit risk, and strategic risk positively affecting readability, while operational risk negatively affects it. The study contributes to the literature on information asymmetry and institutional theory by demonstrating how risk disclosure and readability are influenced by external factors like the COVID-19 outbreak and internal factors such as firm characteristics and types of risks. It introduces a new risk definition and category specific to the COVID-19 pandemic and develops new measurements for risk disclosure, including credit, liquidity, market, operational, business, strategic, and COVID-19 risks. The study provides valuable insights for managers, investors, regulators, and standard setters on the relationship between risk disclosure and readability in annual reports. It highlights the importance of disclosing COVID-19-related information to enhance the readability and understandability of financial communication. The paper contributes to the literature and practice on risk disclosure, readability, and financial communication during crises.

1- Introduction In order to protect the manager's interests, attempts are made to conceal negative news inside the company and not disclose it. The act of hiding the bad news and accumulating it within the company has led to the creation of a mass of negative information. The sudden outburst of such news to the market will cause a dramatic decrease in stock prices. In this regard, disclosure of information about the risks faced by the company can lead to transparency of information and thus reduce the stock price crash risk. The aim of this study is to investigate the effect of risk disclosure, including financial risk, non-financial operating risk and strategic non-financial risk on stock price crash risk. 2- Hypothesis Based on what was stated in the theoretical foundations of the research, one of the factors affecting the stock price crash risk is the disclosure of various risks. If the disclosure of the risks to which the company is exposed has informational content, it is expected to reduce the stock price crash risk. Therefore, the research hypotheses were formulated as follows: H1: Disclosure of total risk by the company has a negative impact on the stock price crash risk. H2: Disclosure of financial risk by the company has a negative impact on the stock price crash risk. H3: Disclosure of non-financial operating risk by the company has a negative impact on the stock price crash risk. H4: Disclosure of strategic non-financial risk by the company has a negative impact on the stock price crash risk. 3- Methods Since the results of this research can be used in the decisions of users of financial statements, the purpose of this research is categorized as an applicable one. Besides, in terms of nature, it is included in descriptive research groups. It is also based on real information about the financial statements of companies listed on the Tehran Stock Exchange, which can be generalized to the entire statistical community by inductive method. As the goal of this research is to analyze the effect of exposing different types of risk on stock price crash risk, so it is in the field of post-event studies. In this research, the achievement of results has been done by testing the available data, so the present study is considered in the group of positive research. 4- Results The first hypothesis of the research based on the negative and significant effect of total risk disclosure on stock price crash risk was not rejected. The results of this hypothesis indicate that the higher the risk disclosure in financial reporting, the lower the stock price crash risk. The second hypothesis of the research based on the negative and significant effect of disclosure of financial risk on stock price crash risk was not rejected. The results of this hypothesis indicate that the higher the level of disclosure of financial risk in financial reporting, the lower the stock price crash risk. The third hypothesis of research based on the negative and significant effect of non-financial operational risk disclosure on stock price crash risk was not rejected. The results of this hypothesis show that as the amount of non-financial operational risk disclosure in financial reporting increases, the stock price crash risk will decrease. The fourth hypothesis of the research based on the negative and significant effect of disclosure of strategic non-financial risk on stock price crash risk was not rejected. The results of this hypothesis reveals that, as the level of disclosure of strategic non-financial risk in financial reporting increases, the stock price crash risk will decrease. 5- Conclusion The results of this reserach suggest that the disclosure of risk and its types in the Report of Directors has information content. As a result of more timely disclosure of information about the good and bad news of the company and reducing the motivation of managers to accumulate bad news and publish this news to the market, the stock price crash risk is reduced. Also, among the types of risk disclosure, using both negative skewness of stock returns criteria and down-to-up volatility, disclosure of non-financial operational risk leads to a further reduction in the stock price crash risk.

This study aims to measure the degree of operational risk disclosure and examine its impact on operating cash flow of banks listed on the UAE Abu Dhabi Stock Exchange (ADX) and Dubai Financial Market (DFM) during the period 2003-2016. The authors conducted content analysis of the annual reports to measure the degree of operational risk disclosure. In addition, they used dynamic panel data regressions to analyze the impact of operational risk disclosure on the operating cash flow generated by the banks. The results show a low degree of operational risk disclosure for all UAE banks, both Islamic and conventional. In addition, the results show no association between the levels of disclosure of operational risk and cash flow for all banks, conventional and Islamic. Operational risk disclosure of Islamic banks has not been examined by any prior researchers. In addition, this paper examines the potential impact of operational risk disclosure on the operating cash flow generated by the banks.

This study aims to investigate the prominent determinants of Islamic and conventional banks’ profitability. The independent variables are bank size, loan, credit risk, and stability (measured by z-score). The profitability was measured by return on assets. The analysis of data was on annual data of Islamic banks (Islamic commercial banks and sharia business unit of conventional banks) and traditional commercial banks during the period 2014-2016. The statistical description showed that the profitability and loan of the sharia business unit are higher than Islamic and conventional commercial banks. Islamic commercial banks have the highest credit risk. Traditional commercial banks are more stable than Islamic banks. The regression test results found that credit risk and z-score have a significant and robust relationship with the profitability of Islamic and conventional banks. The higher z-score and lower credit risk will increase profitability. The bank size and loan variable do not affect the profitability of conventional banks. But vice versa, the bank size has a positive and significant relationship with the profitability of Islamic commercial banks and negative relationships with the sharia business unit profitability. Likewise, the loan variable has a negative and significant relationship with the profitability of Islamic commercial banks and a positive relationship with the sharia business unit profitability. It can be explained that the profitability of Islamic banks is influenced by all of the independent variables. While conventional bank profitability is only affected by two variables. Thus, it can be concluded that only stability and credit risk variable plays a vital role in increasing the profitability of Islamic and conventional banks.