Bank Disclosure Research Articles

Foreign expertise in stress testing of the banking sector and the possibility to adapt it to the Russian practice

Subject. Designated to measure the resilience of a financial system to stress in the real economy, spillover effects within the system and their induction, macroprudential stress testing is essential to the systemic risk assessment. Objectives. We examine the foreign expertise in stress testing of the banking sector and the possibility to adapt it to the Russian practice. Methods. The study is based on methods of analysis, comparison and systematization of the data collected. Results. We conducted a comparative analysis of the best foreign practices of stress testing in banking and evaluated whether it could be adapted to the Russian practice. Conclusions. Foreign stress testing practices are distinctive as the development level of financial markets and methodology of stress testing are different. The Basel Committee is a pivot in the development of principal approaches, which subnationally sets up the way the mechanism evolves. It is generalizing and analyzing regulators' practices in the leading countries. The stress testing methodology of the Central Bank of Russia is compliant with the Basel recommendations, with its quality being highly recognized under part of the IMF FSAP. The approach will help the Central Bank make stress testing more precise. It is reasonable to adapt some foreign practices, such as a stress testing horizon to be extended from a year up to 3–5 years; the use of dynamic balance sheets of banks to predict knock-on effects and an inverse reaction; the preparation of research and cyclical scenarios; the Central Bank's disclosure practice to be applicable to a greater audience; stress testing of the mala fide behavior risk.

Public Disclosure and Consumer Financial Protection

The U.S. Consumer Financial Protection Bureau has accepted complaints about banks’ financial products and services since 2011 and has released the complaint database to the public since 2013. We analyze the effectiveness of this public disclosure in protecting mortgage borrowers. We find a greater reduction in mortgage applications to banks that receive more mortgage complaints in local markets after the disclosure. The effect is stronger in areas with more sophisticated consumers and higher credit competition, and for banks receiving more severe complaints. The number of monthly mortgage complaints per bank exhibits faster mean reversion after the publication of the database. Our findings suggest that the public disclosure of banks’ provision of inferior products and services enhances product market discipline and consumer financial protection.

Social Responsibility Activity Disclosure: The Case of Jordanian Banks

The current study aims to evaluate the level of social responsibility practices of Jordanian banks, and to trace certain bank characteristics that affect the level of social responsibility disclosure. A disclosure index with 32 items was used to test the annual reports of 13 Jordanian banks. Data analysis has revealed that the banks disclosed nearly 69% of the index’s items, and six banks disclosed more than 80% of the items. The results have proved that there was an acceptable level of disclosure of Jordanian banks listed on the ASE. The results of the regression analysis have confirmed that size, earnings, age and number of branches were significantly and positively affected the level of social responsibility information disclosure.

Impact of Corporate Governance Mechanisms on Corporate Social Responsibility Disclosure of Publicly-Listed Banks in Bangladesh

The study examines the impact of corporate governance mechanisms, such as board characteristics on corporate social responsibility disclosure (CSRD). The data on CSRD items and board characteristics have been collected by content analysis of the annual reports of 30 publicly-listed banks in Bangladesh covering six years, from 2013 to 2018. More specifically, the directors’ report, the chairman’s statement, notes to the financial statement and CSR disclosure reports included in annual reports were used to collect the CSRD data. The empirical analysis applies the ordinary least square and the generalized method of moments. The results of the study have revealed that board size, board independence, female board member, and foreign directors have a significant positive impact on CSRD. By contrast, political directors and audit committee size have a negative impact on CSRD. Interestingly, accounting experts on boards ensure more CSRD as they curb the influence of politicians on the board. Thus, it is better to increase accounting experts and decrease politicians on the board. These findings provide valuable insights into the process of forming a suitable CSR policy by connecting the efforts of the board, government, and regulatory bodies to enhance the performance of banks to CSR as well as to CSRD.

Dampak Dispersion Of Ownership, Financial Distress, Dewan Pengawas, Umur Listing terhadap Pengungkapan Sukarela Bank Syariah

This study aims to look at the effect of ownership dispersion, financial distress, sharia supervisory board and age of listings on the extent of voluntary disclosure in Islamic banks registered with OJK in the 2015-2018 period. The population of the study was 14 companies of Islamic Commercial Banks and the number of samples obtained were 13 companies with an observation period of 4 years. Data analysis techniques using multiple linear regression. Statistical results show that Simultaneous that dispersion of ownership, financial distress, sharia supervisory board and age of listings have a positive and significant effect on voluntary disclosure of Islamic Commercial Banks. While partially dispersion of ownership and sharia supervisory board negative significant influence on voluntary disclosure of Islamic Commercial Banks.
 Keywords: Voluntary Disclosure; Ownership Dispersion; Financial Distress; Supervisory Board; Age Of Listing.

Assessing Shariah Disclosure in Pakistan: The Case of Islamic Banks

The foundation of Islamic banking and finance is based on the Islamic law of business transactions/ muamlat, which also confines to the moral and ethical codes of Islam. Also, the involvement of Shariah and Islamic ethics in the governance structure of Islamic banks gives rise to a special kind of disclosure issue called Shariah disclosure. The literature suggests, that stakeholders, including customers and shareholders, use Shariah disclose as core criteria to direct their transactions with Islamic Banking Institutions (IBIs). However, the available disclosure indices in the established literature are not insufficient for assessing Shariah disclosure of the IBIs. The present research study attempts to assess the level of Shariah disclosure of five full-fledged Islamic banks in Pakistan. For this purpose, the study developed Shariah Disclosure Index (ShDI). ShDI will be used as the basis upon the disclosure requirements of State Bank of Pakistan (SBP), Accounting and Auditing Organizations for Islamic Financial Institutions (AAOIFI), and Islamic business reporting literature. A survey design is used to collect the data for ShDI constructs by utilizing annual reports of the five full-fledged banks from the year of 2015 until 2017. The findings disclosed that the Shariah disclosure in Pakistani Islamic banks is satisfactory i.e., near 70% compared 30% Shariah disclosure of the foreign Islamic banks operating in Pakistan. It is appreciable that all the Islamic banks, particularly Pakistani Islamic banks, disclosing about 80%-90% of the SBP mandatory and AAOIFI recommended Shariah disclosure items. While, disclosure of the voluntary Shariah disclosure items are still very low i.e. 15%. It is also noted that the Shariah disclosure level was gradually improving which portrays in the increment of the average Shariah disclosure level in 2017 compared to2015. The research provides a benchmark and indicator for all stakeholders who are making their investment and business decisions In addition, the study is equally important for IBIs to comply with ShDI to ensure full Shariah disclosure in order to attract new investors, religiously excluded investors, and protect the ideological stance and religious commitments of the existing customers as well.

Intellectual Capital Disclosure: Some Evidence from Healthy and Distressed Banks in Italy

The article investigates the intellectual capital disclosure of Italian banks over the years 2016–2017, applying the specific lens of healthy and distressed banks. To this end, we used content analysis and encoding techniques. The main results point out that intellectual capital (IC) disclosure is generally poor and that the intensity of disclosure varies slightly between healthy and distressed banks. Regarding the quality of disclosure, healthy banks present a higher, albeit modest, tendency to disclose non-qualitative and forward-looking information, maybe due to the fact that they are more focused on the strategies and the relationships with stakeholders as opposed to a more short-term approach of the distressed banks. To complement our study on healthy and distressed banks, we repeated the analysis focusing on bank size and independent directors. In this case, results do not show relevant differences in terms of IC disclosure. Hence, our findings suggest the need to consider banks’ IC disclosure as a strategic asset for increasing, among others, transparency and reputation.

THE SHARIA SUPERVISORY BOARD AND CORPORATE SOCIAL RESPONSIBILITY DISCLOSURE: A SHARIA PERSPECTIVE IN INDONESIA

Purpose of the study: This research aims to examine the relationship between the Sharia Supervisory Board (SSB) and the Corporate Social Responsibility (CSR) disclosure with financial performance as a mediating variable in Indonesia. By understanding the importance of the SSB responsibilities in the continuity of Sharia Banks, therefore, it is necessary to re-examine them.
 Methodology: This research was conducted on sharia banks registered in Sharia Banking Statistics of the Financial Services Authority (Otoritas Jasa Keuangan (OJK) in Bahasa) during the period of 2010-2016. There were 6 Sharia Banks involved as the sample of this study selected through a purposive sampling technique.
 Main Findings: The results showed that the Sharia Supervisory Board had a positive relationship with the CSR disclosure. But, this study implies that the CSR disclosure is not able to mediate the relationship between the SSB with the CSR disclosure of sharia banks in Indonesia.
 Applications of this study: In Indonesia, the purpose of existence of the SSB in Sharia Banks is to tend to comply with regulation, and this condition may affect the results. So, some measurement about the SSB in Indonesia is needed in future studies. Also, for future studies, it is suggested that they may add quality assets as a proxy for financial performance and other variables in order to obtain better results.
 Novelty/Originality of this study: This study tries to prove empirically the relationship between the SSB on the CSR disclosure of Sharia Banks in Indonesia with financial performance as its mediating variable. This study is indispensable to do in Indonesia, as the country with the biggest Muslim population in the world.

A comparative study on CSR disclosure between Indonesian Islamic banks and conventional banks: the application of GRI and ISR indexes

This study aims to determine whether or not there is a discrepancy in Corporate Social Responsibility (CSR) disclosure between sharia and conventional banks in Indonesia, and which CSR aspects are better between those two types of the banks. This study applied a quantitative approach. The analysis method used in this study to test the hypothesis was independent sample t-test. The method was applied to determine whether there is a significant difference in the average value between sharia and conventional banks. The number of samples in this study were 40 consisting of 20 Islamic banks and 20 conventional banks. The data taken were those between 2011 and 2014 which contained the information related to CSR. The results of this study indicated that there were significant differences in CSR disclosure between sharia and conventional banks. On average, CSR disclosure rate of sharia banks was higher than that of conventional banks. The weaknesses of CSR disclosure of sharia banks were in the aspects of environment and general information, while the weaknesses of CSR disclosure of conventional banks were in the aspects of energy, health and safety of the employee, product, and society involvement. Due to the limitation of this study in compiling the aspects of variables presented in Global Reporting Initiative (GRI) and Islamic Social Reporting (ISR), it is suggested for the future study to do further detail analysis to compile and to combine with the primary data in order to get the precise quality of the data disclosed by each bank.

Accounting for Financial Stability: Bank Disclosure and Loss Recognition in the Financial Crisis

Accounting for Financial Stability: Bank Disclosure and Loss Recognition in the Financial Crisis

Evaluating ESG disclosures of Islamic banks: evidence from the Organization of Islamic Cooperation Members

Evaluating ESG disclosures of Islamic banks: evidence from the Organization of Islamic Cooperation Members

مدى اهتمام المصارف الإسلامية بالمسؤولية الاجتماعية:, دراسة مقارنة بين بنك البركة الجزائري والبنك الإسلامي الأردني خلال الفترة 2012-2017

This study aims to show the interest of Al Baraka Bank of Algeria and the Islamic Bank of Jordan in social responsibility, and to measure their commitment to their social role.The study concluded that there is a contribution from the Islamic banks studied in spending on social responsibility programs in varying proportions, and that these banks do not pay much attention to the disclosure of their social identity.In light of the results of the study, we recommend that Al Baraka Bank of Algeria should work to increase the spending on social responsibility programs, as well as the need to evaluate the disclosure of both banks about their social role through annual reports. Key words - Social responsibility , Islamic banks, Al Baraka Bank of Algeria, Jordan Islamic Bank, Social identity index.

Evaluating ESG disclosures of Islamic banks: evidence from the Organization of Islamic Cooperation Members

This study considers the level of environment, social and governance (ESG) disclosures in the Islamic banks listed on the Organization of Islamic Cooperation Members stock Exchange and investigates the relationship between ESG disclosures and banks' financial (ROE), operational (ROA) and market performance (TQ). We examine 59 banks for 10 years (2007-2016), ends up with 561 observations. The results of regression models found significant positive impact of ESG on operational, financial and market performance. However, the relationship between performance and these disclosures is varying if measured individually; the environmental disclosure found positively affect the ROA and TQ. Whereas, the corporate social responsibility disclosure is negatively affect the three models (ROA, ROE and TQ). Last but not the least, the corporate governance disclosure found negatively affects the financial and operational performance. However, positively affect the TQ.

Bank Opacity and Systemic Risk

This paper examines the impact of bank opacity on European financial stability. Based on a panel dataset of capital market-oriented European banks covering the period 2002-2018, it can be shown that bank opacity has a significant influence on the institution-specific contribution to the ∆Conditional Value at Risk and Marginal Expected Shortfall. The policies introduced by accounting standard setters and regulators for the risk disclosure of banks have a positive impact on the mitigation of bank opacity and reducing systemic risk. Both the risk reporting in accordance with IFRS 7 and the measures introduced by the Basel Committee in the form of the Basel Pillar 3 Regulation lead to an increase in transparency (reduction of Bank Opacity) and thus to an improvement in financial market stability. The results are robust, both by using alternative opacity measures and by using dynamic panel data models (GMM) to control for endogeneity.

Content analysis of bank disclosures related to ESG risks

The current article focuses on ESG risks. Taking into account ESG aspects, and the expectations and guidelines related to public reports on ESG risks, we created a list of questions, based on which we evaluated the reports of nine large domestic banks published in 2019. Based on a content analysis of the reports, we can con-firm the hypothesis that ESG risks are not built into the risk management process and are not defined as independent risks, and that the ESG framework does not have a dedicated organization. The management of ESG risks is unstructured and only partially reflected in domestic practice, and since there is no uniform requirement for disclosure, heterogeneous reports and information content are typical. The main problem can be seen in the absence of a definition of the ESG framework. Related to the three issues (the environment, social responsibility, and corporate governance), banks lag far behind in integrating environmental considerations into lending policy.

The role of information disclosure in financial intermediation with investment risk

We study how information disclosure affects financial intermediation when the payoff to the long-term investment is risky. The analysis is based on a business-cycle version of the bank run model wherein a bank provides risk sharing to demand depositors who experience unobservable shocks to their liquidity preferences. The bank pre-commits to the precision of an interim signal regarding the payoff to the long-term investment. We examine the impact of bank disclosure on optimal risk sharing achieved by run-proof, signal-contingent demand-deposit contracts. We show that for utility functions that display non-increasing absolute risk aversion, more informative disclosure improves the ex ante risk sharing provided by financial intermediation.

Readability of Operational Risk Disclosures of Banks

Abstract Operational risk has been acknowledged as a major source of material failures in financial firms. Despite the increased concern of financial institutions and their stakeholders on this topic, the literature that deals specifically with the operational risk disclosure in the banking system is scarce. The present research investigates the readability in transparency reports of Romanian banks, and focuses in particular on the operational risk disclosures. The sample consists of 13 commercial banks operating in Romania in 2017. A concise transparency report is characterized by clarity in the expression of concepts, usage of as few words as possible, limited use of technical terms and avoidance of highly generic disclosures. Drawing upon prior research, we expect that banks with lower levels of performance are foggier (i.e. less concise) in order to improve the image resulting from their transparency reports. Additionally, it is expected that the longer an entity has been established, the higher the quality of disclosures, thus the transparency reports of older banks are more concise compared to the recently established banks. Moreover, we posit that larger banks are more likely to provide more readable reports. The research is part of the larger debate related to disclosure and its various impacts on both the recipient and the giver of information. The main contribution is the innovative approach consisting in the textual analysis of transparency risk reports. To the best of our knowledge, we are not aware of any study that examined conciseness in the setting of operational risk disclosure by banks.

An Empirical Investigation on the Relation between Disclosure and Financial Performance of Islamic Banks in the United Arab Emirates

The paper examines the level of disclosure on Islamic banks' performance in the United Arab Emirates (UAE). The data was collected through content analysis of annual reports and financial statements of all fully-fledged Islamic banks working in the UAE over the period 2009 to 2013. Return on Assets is used as a proxy for the performance of Islamic banks while disclosure index is used as a proxy for Islamic banks' disclosure. Also, predetermined variables are used in the study like Size, Deposits, Non-Performing Investments and Capital to Risk Weighted Assets Ratio. Two-Stage Least-Square regression method is used to check the interdependence relationships between disclosure and performance of Islamic banks in the UAE. The results show a significant relationship between performance and disclosure in the UAE Islamic banks. Our regression results show that Islamic banks with higher levels of disclosure lead to higher operating performance. Furthermore, the performance has a great impact on the level of disclosure which means Islamic banks with high performance measures will disclose more information for investors and other institutions in order to reduce the cost of equity and increase their values in the market. This study is considered as a battery for further studies in the relationship between disclosure and financial performance of Islamic banks at a global level.

Fair value, corporate governance, social responsibility disclosure and banks’ performance

PurposeThe purpose of this paper is to investigate the interaction between mandatory disclosures and voluntary disclosures of banks and the information content of corporate disclosures on firm performance.Design/methodology/approachBased on the US-listed banks from 2007 to 2015, this paper examines the interplay among the fair-value measurement, corporate governance disclosure and voluntary social responsibility disclosure. In addition, the paper examines the extent of such disclosure of mandatory items (fair-value measurement) versus voluntary items (corporate governance and social responsibility issues) on banks’ performance in terms of their return on equity and return on asset.FindingsThis paper finds that banks with a higher social responsibility disclosure score and stronger corporate governance tend to have lower percentages of Level 3 fair-value assets. Banks with a higher Level 3 fair-value asset disclosure have a lower financial performance.Practical implicationsThis paper provides evidence of the interplay of various corporate disclosures by banks and implies that banks use fair-value measurements to disguise their poor performance. The findings provide insights for the policymakers, investors and regulators to assess banks’ disclosure.Originality/valueThis paper extends the study of banks’ fair-value measurements and is the first study to examine the interaction between voluntary and mandatory disclosures. This study sheds lights on the theories of performativity, agency and stakeholder by demonstrating the information contents of corporate disclosures on firm performance.

Corporate ethical standard and the quality of sustainability reporting: empirical evidence from commercial banks in nigeria

Compliance with legal requirements is mandatory for corporate entities in Nigeria, but decision making in a situation that is not legally binding relies on the ethical standard of the company. Sustainability reporting in Nigeria is voluntary, therefore the quality of disclosure is at the discretion of company leadership. This study evaluated the ethical behaviour of Nigerian commercial banks and how it affects their sustainability disclosure quality. The Focus was on the proportion of each bank’s corporate annual reports that contain environmental disclosure, social responsibility disclosure and governance disclosure. Information on the banks’ websites that relate to sustainability policies or activities were also considered. This work includes an extensive review of relevant literature, hinging the study on legitimacy theory. The Cross-sectional research design was utilized in undertaking the study. A sample of fourteen (14) commercial banks was selected from the companies listed on the Nigerian stock exchange and analysed for a period of 2008-2017 financial years. Pearson Correlation and Multivariate Linear model analysis were employed to test the hypotheses. Findings revealed a positive relationship between corporate ethical standard and sustainability disclosure of Nigerian commercial banks. The level of corporate ethical standard in Nigerian banks causes significant positive change in environmental reporting quality, social responsibility reporting quality and governance reporting quality. It is hereby, recommended that company leadership should build strong corporate ethical culture since it directly affects their sustainability. While quality sustainability reporting practice is beneficial to the reporting entity, stakeholders and environment.