The effect of disclosure level on managerial performance and good governance of commercial banks in Bangladesh

Abstract

Voluntary and mandatory disclosure level of financial and non-financial items in annual report contributes to increase managerial performance, ensure good governance and enhance the business's public image. The aim of present study, based on secondary data of selected 8 (eight) banks, is to identify the effect of disclosure score on bank's managerial performance (measured by profitability and liquidity position) and on good governance (measured by board size and percentages of independent director). A total of 210 items of information are identified as a total disclosure index, which includes 87 mandatory disclosure items and 123 voluntary disclosure items. An un-weighted disclosure index method (dichotomous procedure) is used to measure the total level of disclosure in annual reports of sample banks. Results of multiple regression analysis of the study prove that commercial banks with high profitability and strong liquidity position disclose more detailed information in their annual reports than commercial banks with lower or negative profit and with weaker liquidity position. The study also depicts that more directors on the board contribute more encourages for providing huge information in annual reports than a commercial bank having lower number of directors on board, while percentage of independent director on board does not impact the level of disclosure in annual reports of commercial bank. The study suggests that all commercial banks should maintain separate department namely Financial Administration Division (FDA) for Accounting Information System (AIS).