Determinants of Operational Risk Reporting in the Banking Industry

Abstract:     
Motivated by the recognition of operational risk management as being crucial for banks and the importance of adequate reporting for enhancing market discipline, the present paper investigates operational risk disclosure practices in the 1998 to 2001 period. Whereas reporting was not mandatory at that time, disclosure increased in both extent and content. Consistent with arguments based on corporate finance theory, empirical evidence indicates that financial institutions with a lower equity/assets ratio and/or profitability ratio give greater importance to disclosing their assessment and management of operational risks whereas those with higher ratios choose a lower disclosure stance.

Number of Pages in PDF File: 35

Keywords: operational risk, banking, Basel II, discretionary disclosure, disclosure index, information risk, agency costs, political costs, random effects ordered logit model

JEL Classification: G28, M41, M45

working papers series