Mandatory Disclosure, Voluntary Disclosure, and Stock Market Liquidity: Evidence from the EU Bank Stress Tests

46 Pages Posted: 6 Sep 2013 Last revised: 21 Nov 2013

See all articles by Jannis Bischof

Jannis Bischof

University of Mannheim - Accounting and Taxation

Holger Daske

University of Mannheim - Accounting and Taxation

Multiple version iconThere are 2 versions of this paper

Date Written: September 5, 2013

Abstract

We use the EU stress tests and the Eurozone sovereign debt crisis to study the consequences of supervisory disclosure of banks’ sovereign risk exposures. We test the idea that a mandatory one-time disclosure induces an increase in voluntary disclosures about sovereign risk in the following periods and, through the shift in the voluntary disclosure equilibrium, increases the liquidity of banks’ shares. First, we find that the timing and content of different mandatory disclosure events helps explain the levels of stress test banks’ voluntary disclosures about sovereign risk. Second, although the bid-ask spreads of stress test participants generally increased after the mandatory stress test in 2011, our results suggest that the decrease in market liquidity is entirely attributable to those stress test participants that did not commit to voluntarily maintaining the disclosures of sovereign risk exposure.

Keywords: Bank Stress Test, Mandatory Disclosure, Voluntary Disclosure, Sovereign Risk, Risk Disclosure

JEL Classification: G21, G28, M41, M48

Suggested Citation

Bischof, Jannis and Daske, Holger, Mandatory Disclosure, Voluntary Disclosure, and Stock Market Liquidity: Evidence from the EU Bank Stress Tests (September 5, 2013). Journal of Accounting Research, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2321527

Jannis Bischof (Contact Author)

University of Mannheim - Accounting and Taxation ( email )

Mannheim, 68131
Germany

Holger Daske

University of Mannheim - Accounting and Taxation ( email )

Mannheim, 68131
Germany

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