What You Don’t Know Won’t Hurt You: Market Monitoring and Bank Supervisors’ Preference for Private Information

Posted: 21 Jun 2022

See all articles by Ferdinand Elfers

Ferdinand Elfers

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE)

Jeroen Koenraadt

The London School of Economics and Political Science

Date Written: June 7, 2022

Abstract

We exploit cross-country variation in banks’ confidential reporting requirements under COREP, the common European supervisory risk reporting framework, as an indicator for banking supervisors’ preference for private information. Our results suggest that a stronger preference for confidential reporting is associated with significantly lower trading volume, return volatility, and absolute returns around banks’ earnings announcements. These findings are independent of the level of countries’ stock market development and supervisors’ resources and legal power, and are consistent with the idea that investors perceive banks’ public reporting to be less informative when supervisors have a strong private informational advantage. Our study adds to the literature on the influence of bank supervisors’ institutional characteristics on market discipline, and highlights the role of private supervisory knowledge in shaping investors’ monitoring incentives.

Keywords: Market Discipline, Market Monitoring, Risk Disclosures, COREP, FINREP, SSM, Banking Union

JEL Classification: G12, G14, G21, G28, M41, M48

Suggested Citation

Elfers, Ferdinand and Koenraadt, Jeroen, What You Don’t Know Won’t Hurt You: Market Monitoring and Bank Supervisors’ Preference for Private Information (June 7, 2022). Journal of Banking and Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=4138372

Ferdinand Elfers (Contact Author)

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE) ( email )

P.O. Box 1738
3000 DR Rotterdam, NL 3062 PA
Netherlands

Jeroen Koenraadt

The London School of Economics and Political Science ( email )

Houghton Street
London, WC2A 2AE
United Kingdom

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