Research output: Contribution to Journal/Magazine › Journal article › peer-review
Research output: Contribution to Journal/Magazine › Journal article › peer-review
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TY - JOUR
T1 - Bank governance, regulation, supervision, and risk reporting
T2 - evidence from operational risk disclosures in European banks
AU - Barakat, Ahmed
AU - Hussainey, Khaled
PY - 2013/12
Y1 - 2013/12
N2 - This paper investigates the direct and joint effects of bank governance, regulation, and supervision on the quality of risk reporting in the banking industry, as proxied for by operational risk disclosure (ORD) quality in European banks. After controlling for the endogeneity between bank stability and risk reporting quality, we find that banks having a higher proportion of outside board directors, lower executive ownership, concentrated outside non-governmental ownership, and more active audit committee, and operating under regulations promoting bank competition (i.e., less stringent entry to banking requirements) provide ORD of higher quality. In addition, we find that the contribution of bank supervisors to the enhancement of ORD quality depends on the ownership structure of the bank. Specifically, powerful and independent bank supervisors mitigate the incentives for entrenched bank executives to withhold voluntary ORD. Moreover, bank supervisors and largest shareholders perform substitutive roles in monitoring the bank management's compliance with mandatory ORD requirements. For the sake of enhancing risk reporting quality in banks, our findings recommend sustaining board independence, enhancing audit committee activity, easing entry to banking requirements, and promoting a more proactive role for bank supervisors.
AB - This paper investigates the direct and joint effects of bank governance, regulation, and supervision on the quality of risk reporting in the banking industry, as proxied for by operational risk disclosure (ORD) quality in European banks. After controlling for the endogeneity between bank stability and risk reporting quality, we find that banks having a higher proportion of outside board directors, lower executive ownership, concentrated outside non-governmental ownership, and more active audit committee, and operating under regulations promoting bank competition (i.e., less stringent entry to banking requirements) provide ORD of higher quality. In addition, we find that the contribution of bank supervisors to the enhancement of ORD quality depends on the ownership structure of the bank. Specifically, powerful and independent bank supervisors mitigate the incentives for entrenched bank executives to withhold voluntary ORD. Moreover, bank supervisors and largest shareholders perform substitutive roles in monitoring the bank management's compliance with mandatory ORD requirements. For the sake of enhancing risk reporting quality in banks, our findings recommend sustaining board independence, enhancing audit committee activity, easing entry to banking requirements, and promoting a more proactive role for bank supervisors.
KW - Bank regulation and supervision
KW - Basel II (Pillar 3)
KW - Corporate governance
KW - European banks
KW - Operational risk disclosure
U2 - 10.1016/j.irfa.2013.07.002
DO - 10.1016/j.irfa.2013.07.002
M3 - Journal article
VL - 30
SP - 254
EP - 273
JO - International Review of Financial Analysis
JF - International Review of Financial Analysis
ER -