Public Disclosure and Risk-Adjusted Performance at Bank Holding Companies

23 Pages Posted: 23 Aug 2016 Last revised: 16 Dec 2017

See all articles by Beverly Hirtle

Beverly Hirtle

Federal Reserve Bank of New York - Banking Studies Department

Date Written: 2016

Abstract

This article examines the relationship between the amount of information disclosed by bank holding companies (BHCs) and the BHCs’ subsequent risk-adjusted performance. Using data from the annual reports of BHCs with large trading operations, the author constructs an index that quantifies the BHCs’ public disclosure of forward-looking estimates of market risk exposure in their trading and market-making activities. She then examines the relationship between this index and subsequent risk-adjusted returns in the BHCs’ trading activities and for the firm overall. The key finding is that more disclosure is associated with higher risk-adjusted returns. This result is strongest for BHCs whose trading represents a large share of overall firm activity. More disclosure does not appear to be associated with higher risk-adjusted performance during the financial crisis, however, implying that the findings are a “business as usual” phenomenon. These findings suggest that greater disclosure is associated with more efficient risk taking and thus improved risk-return trade-offs, a channel for market discipline that has not been emphasized previously in the literature.

Keywords: disclosure, value at risk, market discipline, banking

JEL Classification: E58, G21, G32, M41

Suggested Citation

Hirtle, Beverly, Public Disclosure and Risk-Adjusted Performance at Bank Holding Companies (2016). Economic Policy Review, Issue Aug, pp. 151-173, 2016. Available at SSRN: https://ssrn.com/abstract=2828079

Beverly Hirtle (Contact Author)

Federal Reserve Bank of New York - Banking Studies Department ( email )

33 Liberty Street
New York, NY 10045
United States
212-720-7544 (Phone)
212-720-8363 (Fax)

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