Risk disclosure, stability and the economic consequences in the banking system

Document Type : Original Article


1 Prof., Faculty of Social Sciences and Economics, University of Alzahra, Tehran, Iran.

2 Associate Prof., Faculty of Social Sciences and Economics, University of Alzahra, Tehran, Iran.

3 Assistant Prof., Faculty of Management and Accounting, University of Allameh Tabatabai, Tehran, Iran.


Shareholders in the capital market always demand Reporting and disclosure and based on information that disclosure; they change their expectations of risk and returns. Disclosure has an economic consequence and the risk disclosure, in addition to economic consequences, has an effect on financial and banking stability. In this paper, we survey the risk disclosure of economic consequences and its effect on banking stability. We count the number of the risk disclosures in Iranian banks' financial statements by using the quantitative content analysis methodology and indexation of Iran's risk disclosure regulation. According to the estimation of panel data from 18 banks to period 2011-2016, we find that risk disclosure has a negative and significant relationship with stability and a positive and significant relationship with the cost of capital.


Abraham, S., & Cox, P. (2007). Analysing the determinants of narrative risk information in UK FTSE 100 annual reports. The British Accounting Review39(3), 227-248.
Abraham, S., & Shrives, P. J. (2014). Improving the relevance of risk factor disclosure in corporate annual reports. The British accounting review46(1), 91-107.
Acharya, V. V., & Yorulmazer, T. (2008). Information contagion and bank herding. Journal of money, credit and Banking40(1), 215-231.
Acharya, V. V., Almeida, H., & Campello, M. (2007). Is cash negative debt? A hedging perspective on corporate financial policies. Journal of Financial Intermediation16(4), 515-554.
Adelopo, I. (2017). Non-financial risk disclosure: The case of the UK’s distressed banks. Australasian Accounting, Business and Finance Journal11(2), 23-42.
Al-Maghzom, A., Hussainey, K., & Aly, D. A. (2016). Value relevance of voluntary risk disclosure levels: Evidence from Saudi banks. Accounting & Taxation8(1), 1-25.
Al-Razeen, A., & Karbhari, Y. (2004). Interaction between compulsory and voluntary disclosure in Saudi Arabian corporate annual reports. Managerial Auditing Journal19(3), 351-360.
Ball, R., & Brown, P. (1968). An empirical evaluation of accounting income numbers. Journal of accounting research, 159-178.
Barako, D. G., Hancock, P., & Izan, H. Y. (2006). Factors influencing voluntary corporate disclosure by Kenyan companies. Corporate Governance: an international review14(2), 107-125.
Barr, R. S., Seiford, L. M., & Siems, T. F. (1994). Forecasting bank failure: A non-parametric frontier estimation approach. Recherches Économiques de Louvain/Louvain Economic Review60(4), 417-429.
Beaver, W., Eger, C., Ryan, S., & Wolfson, M. (1989). Financial reporting, supplemental disclosures, and bank share prices. Journal of Accounting Research27(2), 157-178.
Bojinov, B. V. (2014). Causes of banking crises in modern world. Available at SSRN 2438182.
Botosan, C. A., & Plumlee, M. A. (2005). Assessing alternative proxies for the expected risk premium. The accounting review80(1), 21-53.
Campbell, J. L., Chen, H., Dhaliwal, D. S., Lu, H. M., & Steele, L. B. (2014). The information content of mandatory risk factor disclosures in corporate filings. Review of Accounting Studies19(1), 396-455.
Caprio, G., & Klingebiel, D. (2002). Episodes of systemic and borderline banking crises. Managing the real and fiscal effects of banking crises, World Bank Discussion Paper428, 31-49.
Caprio, G., Barth, J. R., & Levine, R. (2001). Bank regulation and supervision: what works best? (Vol. 2725). World Bank Publications.
Demirgüç-Kunt, A., & Detragiache, E. (2002). Does deposit insurance increase banking system stability? An empirical investigation. Journal of monetary economics49(7), 1373-1406.
Deumes, R. (2008). Corporate risk reporting: A content analysis of narrative risk disclosures in prospectuses. The Journal of Business Communication (1973)45(2), 120-157.
Diamond, D. W., & Rajan, R. G. (2001). Liquidity risk, liquidity creation, and financial fragility: A theory of banking. Journal of political Economy109(2), 287-327.
Dobler, M. (2005). How Informative Is Risk Reporting?-A Review of Disclosure Models.
Drehmann, M., & Juselius, M. (2012). Do debt service costs affect macroeconomic and financial stability?. BIS Quarterly Review September.
Dubinsky, A., & Johannes, M. (2006). Fundamental uncertainty, earning announcements and equity options. In Working Paper.
Easley, D., & O'hara, M. (2004). Information and the cost of capital. The journal of finance59(4), 1553-1583.
Elshandidy, T., Fraser, I., & Hussainey, K. (2013). Aggregated, voluntary, and mandatory risk disclosure incentives: Evidence from UK FTSE all-share companies. International Review of Financial Analysis30, 320-333.
Ernst & Young. (2008). IFRS 7 in the Banking Industry, Ernst & Young, London.
Fiechter, P., & Zhou, J. (2016). The Impact of the Greek Sovereign Debt Crisis on European Banks' Disclosure and its Economic Consequences. The International Journal of Accounting51(1), 85-117.
Financial Stability Review. (2016). On-line version ISSN 2222-3436.
Gordon, L. A., Loeb, M. P., & Sohail, T. (2010). Market value of voluntary disclosures concerning information security. MIS quarterly, 567-594.
Gropp, R., & Heider, F. (2010). The determinants of bank capital structure. Review of finance14(4), 587-622.
Heinle, M. S., & Smith, K. C. (2017). A theory of risk disclosure. Review of Accounting Studies22(4), 1459-1491.
Hope, O. K., Hu, D., & Lu, H. (2016). The benefits of specific risk-factor disclosures. Review of Accounting Studies21(4), 1005-1045.
Houston, J. F., Lin, C., Lin, P., & Ma, Y. (2010). Creditor rights, information sharing, and bank risk taking. Journal of financial Economics96(3), 485-512.
ICAEW. (2011). Reporting business risks: meeting expectations. Information for Better Markets Initiative.
Jizi, M. I., & Dixon, R. (2017). Are risk management disclosures informative or tautological? Evidence from the US banking sector. Accounting Perspectives16(1), 7-30.
Kamal Hassan, M. (2009). UAE corporations-specific characteristics and level of risk disclosure. Managerial Auditing Journal24(7), 668-687.
Kelly, B., & Ljungqvist, A. (2012). Testing asymmetric-information asset pricing models. The Review of Financial Studies25(5), 1366-1413.
König-Kersting, C., Trautmann, S., & Vlahu, R. (2020). Bank instability: Interbank linkages and the role of disclosure.
Kothari, S. P., Shu, S., & Wysocki, P. D. (2009). Do managers withhold bad news?. Journal of Accounting Research47(1), 241-276.
KPMG . (2008). Focus on Transparency: Trends in the Presentation of Financial Statements and Disclosure of Information by European Banks, KPMG, London.
KPMG . (2009). Focus on Transparency: Trends in the Presentation of Financial Statements and Disclosure of Information by European Banks, KPMG, London.
Kravet, T., & Muslu, V. (2013). Textual risk disclosures and investors’ risk perceptions. Review of Accounting Studies18(4), 1088-1122.
Laeven, L., & Levine, R. (2009). Bank governance, regulation and risk taking. Journal of financial economics93(2), 259-275.
Lajili, K., & Zéghal, D. (2005). A content analysis of risk management disclosures in Canadian annual reports. Canadian Journal of Administrative Sciences/Revue Canadienne des Sciences de l'Administration22(2), 125-142.
Lambert, R., Leuz, C., & Verrecchia, R. E. (2007). Accounting information, disclosure, and the cost of capital. Journal of accounting research45(2), 385-420.
Leuz, C., & Schrand, C. (2009). Disclosure and the cost of capital: Evidence from firms' responses to the Enron shock (No. w14897). National Bureau of Economic Research.
Li, Y., He, J., & Xiao, M. (2019). Risk disclosure in annual reports and corporate investment efficiency. International Review of Economics & Finance, 63, 138-151.
Linsley, P. M., & Shrives, P. J. (2006). Risk reporting: A study of risk disclosures in the annual reports of UK companies. The British Accounting Review38(4), 387-404.
Llewellyn, D. T. (2002). An analysis of the causes of recent banking crises. The European journal of finance8(2), 152-175.
Miihkinen, A. (2013). The usefulness of firm risk disclosures under different firm riskiness, investor-interest, and market conditions: New evidence from Finland. Advances in Accounting29(2), 312-331.
Moumen, N., Othman, H. B., & Hussainey, K. (2015). The value relevance of risk disclosure in annual reports: Evidence from MENA emerging markets. Research in International Business and Finance34, 177-204.
Nekhili, M., Hussainey, K., Cheffi, W., Chtioui, T., & Tchakoute-Tchuigoua, H. (2016). R&D narrative disclosure, corporate governance and market value: Evidence from France. Journal of Applied Business Research (JABR)32(1), 111-128.
Oliveira, J., Lima Rodrigues, L., & Craig, R. (2011). Risk-related disclosures by non-finance companies: Portuguese practices and disclosure characteristics. Managerial Auditing Journal26(9), 817-839.
Puspitasari, N. F. D., Simbolon, I. P., & Sari, N. N. (2020, May). Cost of Equity: Disclosure, Size, and Political Connection. In 2nd International Seminar on Business, Economics, Social Science and Technology (ISBEST 2019) (pp. 46-53). Atlantis Press.
Roy, A. D. (1952). Safety first and the holding of assets. Econometrica: Journal of the econometric society, 431-449.
Singleton-Green, B., & Hodgkinson, R. (2011). Reporting business risks: Meeting expectations. Information for Better Markets Series.
Solomon, J. F., Solomon, A., Norton, S. D., & Joseph, N. L. (2000). A conceptual framework for corporate risk disclosure emerging from the agenda for corporate governance reform. The British Accounting Review32(4), 447-478.