Are risk management disclosures informative or tautology? Evidence from the U.S. banking sector

• In Event: Reception with ELS Posters and Research Interaction Forum Posters
  In Poster Session: Research Interaction Forum

Abstract

Banks have come under increasing risk levels during the latest financial crisis. Investors‟ confidence was shaken by the effectiveness of bank risk management practices, which opened new challenges for bank management in approaching their risk. Understanding and communicating adopted risk management mechanisms is most likely to provide insights and enable diagnosis of firm risk exposure. Conveying data that reduces information asymmetry might be reflected on stock performance. Investigating the impact of risk management disclosures content on stock price change and return volatility using a sample of US national commercial banks during 2009-2010 shows that informative risk management disclosures seems to be valued by investors. This is reflected on current year stock prices and reduces the subsequent year return variances.

Authors

• Mohammad Jizi, Lebanese American University

• Robert Dixon, Durham University Business School

• Aly Salama, Durham University Business School