Abstract
Risk disclosure is a crucial factor in enhancing the efficiency of financial markets and promoting financial stability. This paper proposes a methodological tool to analyze credit risk disclosure in bank financial reports, based on the content analysis framework. The authors also uses this methodology to carry out an empirical study on a small sample of large Italian banks. The paper provides preliminary empirical evidence that banks differ in their credit risk disclosure, even though they are subject to homogeneous regulatory and accounting requirements. Furthermore, by carrying out a correlation-based network analysis, the paper provides preliminary evidence on the existence of a relationship between credit risk disclosure, bank size, and business model. The existing literature has not provided any methodological tool to analyze qualitative and quantitative profiles of bank credit risk disclosure. In order to fill this gap, we propose an original research methodology to investigate bank credit risk reporting. While previous contributions have examined related aspects adopting automated content analysis techniques, this paper proposes an original and non-automated content analysis approach. Our research has several regulatory and strategic implications and lays the foundation for further research in banking, finance, and accounting.
Highlights
Risk disclosure in banking contributes to reducing asymmetric information among stakeholders [1, 2] and solving agency problems [3,4,5,6] that arise because of the different interests between a principal and an agent in the banking industry
To preview our main results, we provide preliminary evidence that (1) banks differ in their credit risk disclosure, even though they are subject to similar regulatory requirements; (2) there are various areas of improvements in bank credit risk disclosure, mainly related to the poor forwardlooking disclosure, disclosure fragmentation and the marginal role of the management commentary; (3) by carrying out a correlation-based network analysis, we hypothesize the existence of a relationship among credit risk disclosure, bank size and business model
This paper proposes a methodological tool to analyze credit risk disclosure in bank financial reports, based on the content analysis framework described by Krippendorf [28]
Summary
Risk disclosure in banking contributes to reducing asymmetric information among stakeholders [1, 2] and solving agency problems [3,4,5,6] that arise because of the different interests between a principal and an agent in the banking industry. To preview our main results, we provide preliminary evidence that (1) banks differ in their credit risk disclosure, even though they are subject to similar regulatory requirements; (2) there are various areas of improvements in bank credit risk disclosure, mainly related to the poor forwardlooking disclosure, disclosure fragmentation and the marginal role of the management commentary; (3) by carrying out a correlation-based network analysis, we hypothesize the existence of a relationship among credit risk disclosure, bank size and business model In this regard, we remark that our analysis is exploratory in nature, given that the extant literature has not provided any methodological tool to analyze credit risk disclosure in the banking industry.
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