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Are bank risk disclosures informative? Evidence from debt markets

Are bank risk disclosures informative? Evidence from debt markets
Are bank risk disclosures informative? Evidence from debt markets
This study examines whether financial reporting with a specific focus on risk disclosures have a predictive (informative) effect on banks’ credit ratings (BCRs) and, consequently, ascertains whether governance structures can moderate such an association. Using one of the largest bank-level datasets collected from 12 Middle East and North African (MENA) countries over the 2006-2013 period to-date, our findings are as follows. First, we find that risk disclosures have a predictive effect on BCRs. Second, we find that the relationship between risk disclosures and BCRs is contingent on the quality of governance structures. Specifically, we find that the informativeness of risk disclosures on BCRs is higher in banks with larger board size, greater independence, higher government ownership, and better Shariah supervisory board, but lower in banks with greater block ownership, higher foreign ownership and the presence of CEO duality. The central tenor of our findings remains unchanged after controlling for a number of firm- and country-level factors, alternative risk disclosure measures, firm- and national-level governance proxies, different types of banks, and potential endogeneities. The findings have important implications for investors, especially bondholders, standard-setters, regulators, and central governments.
Financial reporting, risk disclosures, Banks’ credit ratings, Debt markets, Governance structures, MENA
1076-9307
Elamer, Ahmed A.
41f0a000-ef97-4e6b-b741-d755def01823
Ntim, Collins
1f344edc-8005-4e96-8972-d56c4dade46b
Abdou, Hussein A.
c5679c57-2de9-452f-8434-1a0452563e0a
Owusu, Andrews
0a243b8a-d46f-4123-a879-c10df457bc7e
Elmagrhi, Mohamed H.
4961f329-8a2d-47c5-83ee-34fc058030fe
Ibrahim, Awad
a70f55b6-b6ba-4d3a-a5c0-f3e6097247f5
Elamer, Ahmed A.
41f0a000-ef97-4e6b-b741-d755def01823
Ntim, Collins
1f344edc-8005-4e96-8972-d56c4dade46b
Abdou, Hussein A.
c5679c57-2de9-452f-8434-1a0452563e0a
Owusu, Andrews
0a243b8a-d46f-4123-a879-c10df457bc7e
Elmagrhi, Mohamed H.
4961f329-8a2d-47c5-83ee-34fc058030fe
Ibrahim, Awad
a70f55b6-b6ba-4d3a-a5c0-f3e6097247f5

Elamer, Ahmed A., Ntim, Collins, Abdou, Hussein A., Owusu, Andrews, Elmagrhi, Mohamed H. and Ibrahim, Awad (2020) Are bank risk disclosures informative? Evidence from debt markets. International Journal of Finance & Economics. (doi:10.1002/ijfe.1849). (In Press)

Record type: Article

Abstract

This study examines whether financial reporting with a specific focus on risk disclosures have a predictive (informative) effect on banks’ credit ratings (BCRs) and, consequently, ascertains whether governance structures can moderate such an association. Using one of the largest bank-level datasets collected from 12 Middle East and North African (MENA) countries over the 2006-2013 period to-date, our findings are as follows. First, we find that risk disclosures have a predictive effect on BCRs. Second, we find that the relationship between risk disclosures and BCRs is contingent on the quality of governance structures. Specifically, we find that the informativeness of risk disclosures on BCRs is higher in banks with larger board size, greater independence, higher government ownership, and better Shariah supervisory board, but lower in banks with greater block ownership, higher foreign ownership and the presence of CEO duality. The central tenor of our findings remains unchanged after controlling for a number of firm- and country-level factors, alternative risk disclosure measures, firm- and national-level governance proxies, different types of banks, and potential endogeneities. The findings have important implications for investors, especially bondholders, standard-setters, regulators, and central governments.

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Accepted_IJFE_Ahmed_18_June_2020 - Accepted Manuscript
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Accepted/In Press date: 18 June 2020
Keywords: Financial reporting, risk disclosures, Banks’ credit ratings, Debt markets, Governance structures, MENA

Identifiers

Local EPrints ID: 441639
URI: http://eprints.soton.ac.uk/id/eprint/441639
ISSN: 1076-9307
PURE UUID: ab190073-ff37-4237-a247-0f9bd20fb33d
ORCID for Collins Ntim: ORCID iD orcid.org/0000-0002-1042-4056

Catalogue record

Date deposited: 23 Jun 2020 16:30
Last modified: 07 Oct 2020 01:27

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Contributors

Author: Ahmed A. Elamer
Author: Collins Ntim ORCID iD
Author: Hussein A. Abdou
Author: Andrews Owusu
Author: Mohamed H. Elmagrhi
Author: Awad Ibrahim

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