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Journal Article

Public disclosure and risk-adjusted performance at bank holding companies


Abstract: This article examines the relationship between the amount of information disclosed by bank holding companies (BHCs) and the BHCs? subsequent risk-adjusted performance. Using data from the annual reports of BHCs with large trading operations, the author constructs an index that quantifies the BHCs? public disclosure of forward-looking estimates of market risk exposure in their trading and market-making activities. She then examines the relationship between this index and subsequent risk-adjusted returns in the BHCs? trading activities and for the firm overall. The key finding is that more disclosure is associated with higher risk-adjusted returns. This result is strongest for BHCs whose trading represents a large share of overall firm activity. More disclosure does not appear to be associated with higher risk-adjusted performance during the financial crisis, however, implying that the findings are a ?business as usual? phenomenon. These findings suggest that greater disclosure is associated with more efficient risk taking and thus improved risk-return trade-offs, a channel for market discipline that has not been emphasized previously in the literature.

Keywords: banking; value at risk; market discipline; disclosure;

JEL Classification: E58; G32; M41; G21;

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File(s): File format is text/html https://www.newyorkfed.org/research/epr/2016/epr_2016_public-disclosures_hirtle
Description: Summary

Authors

Bibliographic Information

Provider: Federal Reserve Bank of New York

Part of Series: Economic Policy Review

Publication Date: 2016

Issue: Aug

Pages: 151-173