Bank governance, regulation, supervision, and risk reporting: Evidence from operational risk disclosures in European banks

Ahmed Barakat and Khaled Hussainey ()

International Review of Financial Analysis, 2013, vol. 30, issue C, 254-273

Abstract: This paper investigates the direct and joint effects of bank governance, regulation, and supervision on the quality of risk reporting in the banking industry, as proxied for by operational risk disclosure (ORD) quality in European banks. After controlling for the endogeneity between bank stability and risk reporting quality, we find that banks having a higher proportion of outside board directors, lower executive ownership, concentrated outside non-governmental ownership, and more active audit committee, and operating under regulations promoting bank competition (i.e., less stringent entry to banking requirements) provide ORD of higher quality. In addition, we find that the contribution of bank supervisors to the enhancement of ORD quality depends on the ownership structure of the bank. Specifically, powerful and independent bank supervisors mitigate the incentives for entrenched bank executives to withhold voluntary ORD. Moreover, bank supervisors and largest shareholders perform substitutive roles in monitoring the bank management's compliance with mandatory ORD requirements. For the sake of enhancing risk reporting quality in banks, our findings recommend sustaining board independence, enhancing audit committee activity, easing entry to banking requirements, and promoting a more proactive role for bank supervisors.

Keywords: Bank regulation and supervision; Basel II (Pillar 3); Corporate governance; European banks; Operational risk disclosure (search for similar items in EconPapers)
JEL-codes: G21 G28 G32 G34 G38 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (57)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:30:y:2013:i:c:p:254-273

DOI: 10.1016/j.irfa.2013.07.002

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