Financial reporting and bank development: Evidence from Vietnam

An emerging research line has examined the implications of information reporting on financial intermediaries and documented adverse impacts on bank operations. We extend this literature by exploring the effects of opacity on bank development in the form of volume, quality, and costs of bank credit. Using a sample of Vietnamese commercial banks from 2007 to 2021, we find that an increase in opaque financial reporting may raise the volume of bank credit but reduce the quality and increase the costs of bank credit. These results support the view that greater bank opacity results in a large but unsafe and inefficient (i.e., high cost) banking system. Our findings are robust across alternative model specifications, different bank opacity forms via discretionary loan loss provisions and balance sheet metrics, multiple bank development measures, and different regression techniques. These findings also survive while considering the influence of the financial and health crises.