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Transparency or adumbration in risk reporting? An in-depth study of HBOS and HSBC

Transparency or adumbration in risk reporting? An in-depth study of HBOS and HSBC
Transparency or adumbration in risk reporting? An in-depth study of HBOS and HSBC
This paper examines the risk reporting practices of two large banks that performed differently with regards to funding during the financial crisis of 2007 to 2009. Qualitative content analysis was conducted on the banks’ annual reports from 2002 to 2006 and the board members’ prior banking related work experience and professional qualification were analysed. The nature of the two banks’ risk reporting was examined using institutional theory, upper echelons theory and adumbration (i.e., vague, minimal disclosure) in communication. The results suggest that risk disclosures in both of the banks’ annual reports foreshadowed some of the negative events that were experienced by each respective bank and the financial crisis in general. However, the practice of adumbrative reporting was mostly practised by the failed bank rather than the successful bank. Furthermore, these adumbrative risk disclosures were not easily found as they were discretely spread out across the annual reports. At the successful bank, where risk disclosure was more extensive, most executive directors had extensive experience in banking and possessed relevant professional qualifications. While this was not the case in the failed bank, the non-executive directors in the failed bank did have more work experience in banking and other financial services sector indicating that non-executive directors might have been ineffective in the board oversight responsibilities with regards to risk management. Thus, we find that the annual report of a bank may contain carefully distributed risk-related information that can act as a clue to impending difficulties, but that this information may only become evident via painstaking scrutiny. We agree with regulators that banks should report risks in a specific section to ensure better readability and full comprehension of the information supplied and that banks should appoint executive directors based on experience in banking or other financial services. In addition, this research suggests that adequate monitoring should be in place to ensure that such qualified boards effectively use the skills and knowledge that they have gained. This monitoring could be in form of training, performing examinations from time to time for qualified directors on how they may deal with scenario based cases, and/or constant review of business practice by an external supervisory authority.
risk reporting, adumbration, transparency, qualitative content analysis
ATINER: Athens Institute for Education and Research
Osituyo, Oluwaseun
eb11d097-6ebd-4fe9-ae2f-c290f3d89738
Marnet, Oliver
6840910e-2e26-4e63-aa84-76c5c8d27877
Dawson, Ian
dff1b440-6c83-4354-92b6-04809460b01a
Papanikos, Gregory T.
Osituyo, Oluwaseun
eb11d097-6ebd-4fe9-ae2f-c290f3d89738
Marnet, Oliver
6840910e-2e26-4e63-aa84-76c5c8d27877
Dawson, Ian
dff1b440-6c83-4354-92b6-04809460b01a
Papanikos, Gregory T.

Osituyo, Oluwaseun, Marnet, Oliver and Dawson, Ian (2017) Transparency or adumbration in risk reporting? An in-depth study of HBOS and HSBC. Papanikos, Gregory T. (ed.) In 15th Annual International Conference on Accounting. ATINER: Athens Institute for Education and Research..

Record type: Conference or Workshop Item (Paper)

Abstract

This paper examines the risk reporting practices of two large banks that performed differently with regards to funding during the financial crisis of 2007 to 2009. Qualitative content analysis was conducted on the banks’ annual reports from 2002 to 2006 and the board members’ prior banking related work experience and professional qualification were analysed. The nature of the two banks’ risk reporting was examined using institutional theory, upper echelons theory and adumbration (i.e., vague, minimal disclosure) in communication. The results suggest that risk disclosures in both of the banks’ annual reports foreshadowed some of the negative events that were experienced by each respective bank and the financial crisis in general. However, the practice of adumbrative reporting was mostly practised by the failed bank rather than the successful bank. Furthermore, these adumbrative risk disclosures were not easily found as they were discretely spread out across the annual reports. At the successful bank, where risk disclosure was more extensive, most executive directors had extensive experience in banking and possessed relevant professional qualifications. While this was not the case in the failed bank, the non-executive directors in the failed bank did have more work experience in banking and other financial services sector indicating that non-executive directors might have been ineffective in the board oversight responsibilities with regards to risk management. Thus, we find that the annual report of a bank may contain carefully distributed risk-related information that can act as a clue to impending difficulties, but that this information may only become evident via painstaking scrutiny. We agree with regulators that banks should report risks in a specific section to ensure better readability and full comprehension of the information supplied and that banks should appoint executive directors based on experience in banking or other financial services. In addition, this research suggests that adequate monitoring should be in place to ensure that such qualified boards effectively use the skills and knowledge that they have gained. This monitoring could be in form of training, performing examinations from time to time for qualified directors on how they may deal with scenario based cases, and/or constant review of business practice by an external supervisory authority.

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More information

Published date: 3 July 2017
Keywords: risk reporting, adumbration, transparency, qualitative content analysis

Identifiers

Local EPrints ID: 412529
URI: https://eprints.soton.ac.uk/id/eprint/412529
PURE UUID: aa104114-35cc-40a6-be56-279496bfd73d
ORCID for Oliver Marnet: ORCID iD orcid.org/0000-0001-9450-2332
ORCID for Ian Dawson: ORCID iD orcid.org/0000-0003-0555-9682

Catalogue record

Date deposited: 20 Jul 2017 16:30
Last modified: 24 May 2019 00:32

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Contributors

Author: Oluwaseun Osituyo
Author: Oliver Marnet ORCID iD
Author: Ian Dawson ORCID iD
Editor: Gregory T. Papanikos

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