Evidence of Market Discipline Through Operational Risk Disclosures in Commercial Banking Sector of Pakistan

Abstract

This study investigates the evidence of existence of market discipline through Operational risk disclosures under Basle Accord-II among commercial banks of Pakistan during years 2006 to 2014. Content Analysis of operational risk disclosure words is conducted to ascertain extent of market discipline. The findings indicate that the banks have growing awareness about operational risk and its disclosures. The results reveal that most of disclosures are narrative and of voluntary nature, showing existence of market discipline over study period. The results have given useful implications for risk managers to exploit risk information as risk management tool and for regulators as to how market discipline may be used in supervisory review.