Impact of Disclosure and Corporate Governance on the Association Between Fair Value Gains and Losses and Stock Returns in the Commercial Banking Industry

72 Pages Posted: 13 Sep 2007 Last revised: 9 Jan 2013

See all articles by Gauri Bhat

Gauri Bhat

Southern Methodist University (SMU) - Accounting Department

Date Written: January 2013

Abstract

In this paper, I examine the relations between risk management disclosures, governance, and the market pricing of the fair value gains and losses (FVGL) for US commercial bank holding companies (banks). I find that banks with strong corporate governance disclose more about their risk management practices and that the market pricing of the FVGL increases with the level of disclosure. The disclosure’s effect on the market pricing of the FVGL is more pronounced for banks during periods of crisis, for banks with risky assets, and for banks with poor performance. Further analysis shows that subcategories of disclosure have different roles to play under different risk conditions. Overall, the evidence in this paper suggests that market participants perceive the FVGL of banks with high disclosure and strong corporate governance as more relevant and reliable. One potential interpretation is that disclosure aids market participants in evaluating the quality of the FVGL.

Keywords: Fair values, Disclosures, Governance, Banks, Risk Management

JEL Classification: M41, M45, G34, G12, G10

Suggested Citation

Bhat, Gauri, Impact of Disclosure and Corporate Governance on the Association Between Fair Value Gains and Losses and Stock Returns in the Commercial Banking Industry (January 2013). Available at SSRN: https://ssrn.com/abstract=1013926 or http://dx.doi.org/10.2139/ssrn.1013926

Gauri Bhat (Contact Author)

Southern Methodist University (SMU) - Accounting Department ( email )

United States
214-7682964 (Phone)

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