Abstract
PurposeThe purpose of this paper to analyze the risk reporting practices and its determinants of commercial banks during the period of the adoption of the Basel II Accord in Portugal.Design/methodology/approachThe paper conducts a content analysis of the risk and risk management sections included in the management reports and the notes of the annual reports of Portuguese commercial banks, for the years 2007, 2010 and 2013.FindingsFindings show that theoretical frameworks underpinned in agency and legitimacy theories continue to provide valid explanations for risk reporting by Portuguese banks. More specifically, findings indicate that agency costs, public visibility and reputation are crucial drivers of risk reporting. Findings also indicate that younger banks with lower risk management skills use risk reporting either as an informational process or as a channel to manage organizational legitimacy.Research limitations/implicationsThe content analysis does not allow readily for in-depth qualitative inquiry. The coding instrument is subject to coder bias. Information about risk can be provided in sources other than annual reports. Additionally, not all banks disclose information on corporate governance-related variables that could also influence risk reporting.Originality/valueThe current research setting has never been studied hitherto. In this sense, this study seems to be of great relevance given the scarcity of literature on the subject in Portugal.
Highlights
In Portugal, the Basel II Accord became mandatory in 2007 onward (Decree-Law No 103/2007 and Decree-Law No 104/2017)
The present study investigates a particular aspect of risk reporting by Portuguese commercial banks over the period of 2007, 2010 and 2013: the determinants of risk reporting during the period of adoption of Basel II Accord
The present study extends this literature by exploring both the evolution of risk reporting by Portuguese commercial banks and their determinants during the period of adoption of the Basel II Accord
Summary
In Portugal, the Basel II Accord became mandatory in 2007 onward (Decree-Law No 103/2007 and Decree-Law No 104/2017). Oliveira et al (2011b) focused on managers’ motivation for voluntary operational risk reporting by Portuguese commercial banks All these studies are focused on periods of analysis prior to the 2008 financial crisis and the adoption of risk-based regulations (such as the Basel II Accord). The present study extends this literature by exploring both the evolution of risk reporting (which includes operational risks and risk management objectives and policies, liquidity risk, credit risk, market risk and capital adequacy) by Portuguese commercial banks and their determinants during the period of adoption of the Basel II Accord. It introduced capital buffer requirements, of both a structural and countercyclical nature to strengthen the resilience of institutions and promote the internalization of potential costs for the financial system
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