Title: Information disclosure, bank performance and bank stability

Authors: Perihan Iren; Alan K. Reichert; Dieter Gramlich

Addresses: College of Business, Zayed University, P.O. Box 144534, Abu Dhabi, UAE ' College of Business, Cleveland State University, 2121 Euclid Avenue, Cleveland, OH 44115-2214, USA ' Baden-Wuerttemberg Cooperative State University, Marienstrasse 20, Raum 409, 89528 Heidenheim, Germany

Abstract: The purpose of this research is to identify the effects of information disclosure on commercial bank performance and stability. Specifically, the study examines the relationship between different levels of information disclosure and the subsequent impact on various measures of bank return and risk. The focus is on securitised assets and credit derivative activities, both of which were at the heart of the sub-prime mortgage crisis of 2008. Using a sample of 27 US bank holding companies (BHCs) for the period from June 2001 to December 2008, a significant relationship between the quantity and quality of information disclosure and bank performance and stability is observed. A 'switching' behaviour is identified, whereby performance and stability initially decrease and then improve when additional information on a bank's securitisation and credit derivative activities are disclosed. This switching effect is possibly explained by economies-of-scale and a 'learning curve' effect. The results provide guidance for managing both the volume and quality of information disclosed by both bank managers and the regulatory authorities.

Keywords: information disclosure; transparency; banking disclosure; bank performance; bank stability; securitisation; credit derivatives; financial crisis; commercial banks; securitised assets; credit derivatives; sub-prime mortgage crisis; bank risk; bank returns; switching behaviour; economies of scale; learning curve.

DOI: 10.1504/IJBAAF.2014.067027

International Journal of Banking, Accounting and Finance, 2014 Vol.5 No.4, pp.374 - 417

Accepted: 06 Oct 2014
Published online: 31 Jan 2015 *

Full-text access for editors Full-text access for subscribers Purchase this article Comment on this article