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Are Risk Management Disclosures Informative or Tautological? Evidence from the U.S. Banking Sector

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  • Mohammad I. Jizi
  • Robert Dixon

Abstract

Banks experienced increasing risk levels during the latest financial crisis. Investors’ confidence was shaken by the effectiveness of bank risk management practices, which has opened new challenges for bank management in approaching its risk. Understanding and communicating adopted risk management mechanisms is likely to provide insights and enable diagnosis on firm risk exposure. Conveying data that reduces information asymmetry might be reflected on stock performance. Investigating the impact of risk management disclosures content on stock price change and return volatility, using a sample of U.S. national commercial banks during 2009–2010, shows that informative risk management disclosures seems to be valued by investors. This is reflected on current‐year stock prices and reduces the subsequent‐year return variances. La plus récente crise financière a exposé les banques à des niveaux de risque croissants. Elle a ébranlé la confiance des investisseurs dans l'efficacité des mesures de gestion des risques appliquées dans le secteur bancaire, ce qui a complexifié la gestion des risques pour la direction des banques. Il est fort probable que la compréhension des mécanismes de gestion des risques qui sont adoptés et la communication d'informations à ce sujet soient instructives et permettent un diagnostic quant aux risques auxquels sont exposées les entreprises. La transmission de données réduisant l'asymétrie de l'information pourrait avoir des répercussions sur le rendement des actions. L’étude de l'incidence du contenu en information des renseignements fournis quant à la gestion des risques sur l’évolution du cours des actions et la volatilité des rendements, à partir d'un échantillon de banques commerciales nationales des États‐Unis de 2009 à 2010, révèle que les investisseurs semblent attacher de la valeur aux informations instructives qui sont communiquées au sujet de la gestion des risques. Cette valeur se reflète dans le cours des actions de l'exercice considéré et réduit la fluctuation des rendements de l'exercice subséquent.

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  • Mohammad I. Jizi & Robert Dixon, 2017. "Are Risk Management Disclosures Informative or Tautological? Evidence from the U.S. Banking Sector," Accounting Perspectives, John Wiley & Sons, vol. 16(1), pages 7-30, March.
    • Handle: RePEc:wly:accper:v:16:y:2017:i:1:p:7-30
    DOI: 10.1111/1911-3838.12134
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