The Impact of the Greek Sovereign Debt Crisis on European Banks’ Disclosure and its Economic Consequences

44 Pages Posted: 1 Jan 2013 Last revised: 29 Jun 2016

See all articles by Peter Fiechter

Peter Fiechter

University of Neuchatel - Institute of Financial Analysis

Jie Zhou

University of Zurich

Abstract

Using a sample of European banks, this paper examines the link between disclosure and its economic consequences. We exploit an exogenous cost of capital shock created by the Greek Sovereign Debt Crisis and analyze banks’ disclosure responses to this shock. First, we find that European banks increase the length of their annual reports from 2009 to 2011, in particular the risk reporting. The increase in risk disclosure is mainly attributable to enhanced disclosure on credit risk including information about any direct exposure to the European Sovereign Debt Crisis. Our cross-sectional results show that the increase in length of either the annual report or the risk report is positively associated with the bank-specific cost of capital shock. Second, we find that the increase in risk disclosure mitigates the cost of capital shock; whereas the increase in the length of the annual report does not help reducing the cost of capital.

Keywords: Greek sovereign debt crisis, disclosure, cost of capital, European banks, risk information

JEL Classification: G14, G21, M41

Suggested Citation

Fiechter, Peter and Zhou, Jie, The Impact of the Greek Sovereign Debt Crisis on European Banks’ Disclosure and its Economic Consequences. The International Journal of Accounting, Vol. (51), No. (1), 2016, Available at SSRN: https://ssrn.com/abstract=2195013 or http://dx.doi.org/10.2139/ssrn.2195013

Peter Fiechter (Contact Author)

University of Neuchatel - Institute of Financial Analysis ( email )

Rue A.-L. Breguet 2
Neuchatel, CH-2000
Switzerland

Jie Zhou

University of Zurich ( email )

Rämistrasse 71
Zürich, CH-8006
Switzerland

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