Information Content and Pillar 3 Disclosures

The framework developed in Chapter 3 posits an explanation for the existence of mandatory disclosures in an economy that puts information at its core. This chapter empirically evaluates the question as to whether mandatory disclosures provide decision-specific information for markets using event study analysis to explore the impact of Pillar 3 disclosures by banks. The chapter draws on and improves upon bond market event study methodology as developed by Ederington, Guan & Yang (2015). The results suggest that such disclosures do not have an impact on bond investors. The results bring into question the efficacy of the principle of market discipline, one of the key pillars of banking regulation today, and are contrary to expectations and current thinking on mandatory disclosure requirements. A conclusion that seems to be borne out also by recent experience, more specifically the failure of Silicon Valley Bank and Credit Suisse. The chapter explores possible reasons for the above seemingly contradictory result using the developed framework and argues that a more nuanced approach is required in the area.