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Bank Disclosures and their Impact on Credit Risk: Evidence from Bangladesh

Author

Listed:
  • Changjun Zheng
  • Niluthpaul Sarker
  • Shamsun Nahar

Abstract

The only way to ensure a well-informed response to bank risks is by ensuring transparent disclosures that flourish with potential synergy. This study investigates the impact of bank disclosures on credit risk where panel data are used. PCSE and FGLS regression models are applied to a sample of 32 commercial banks in Bangladesh from 2010 to 2014. The results reveal that bank disclosures index, non-sponsor ownership and advances to total assets are inversely associated with bank risk, whereas government ownership, capital adequacy ratio and tier 1 capital have a positive effect. The study’s findings have a twofold implication for the national economy. First, the higher number of disclosures portrays a transparent image in users’ minds that decreases stock volatility and the cost of capital. Second, policy makers should rethink government ownership with respect to the absorption of serious risk. Therefore, it is highly recommended either to denationalize or to reduce government ownership.

Suggested Citation

  • Changjun Zheng & Niluthpaul Sarker & Shamsun Nahar, 2017. "Bank Disclosures and their Impact on Credit Risk: Evidence from Bangladesh," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 7(12), pages 1211-1226.
    • Handle: RePEc:asi:aeafrj:v:7:y:2017:i:12:p:1211-1226:id:1637
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    Cited by:

    1. Islam, Mollah Aminul & Liu, Haiyun & Khan, Muhammad Asif & Islam, Md Tariqul & Sultanuzzaman, Md Reza, 2021. "Does foreign direct investment deepen the financial system in Southeast Asian economies?," Journal of Multinational Financial Management, Elsevier, vol. 61(C).
    2. Miroslav Mateev & Ahmad Sahyouni & Muhammad Usman Tariq, 2023. "Bank regulation, ownership and risk taking behavior in the MENA region: policy implications for banks in emerging economies," Review of Managerial Science, Springer, vol. 17(1), pages 287-338, January.

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