Information Disclosures, Default Risk, and Bank Value
44 Pages Posted: 4 Oct 2013 Last revised: 11 Sep 2015
Date Written: September 6, 2015
This paper investigates the causal effects of voluntary information disclosures on a bank's expected default probability, enterprise risk, and value. I measure disclosure via a self-constructed index for the largest 80 U.S. bank holding companies for the period 1998-2011. I provide evidence that a bank's management responds to a plausibly exogenous deterioration in the supply of public information by increasing its voluntary disclosure, which in turn improves investors' assessment of the bank risk and value. This evidence suggests that disclosure may alleviate informational frictions and lead to a more efficient allocation of risk and return.
Keywords: Disclosure, probability of default, risk management, asymmetric information, corporate governance
JEL Classification: G21, G30, G32, G38, M41
Suggested Citation: Suggested Citation