Disclosure, Volatility, and Transparency: An Empirical Investigation into the Value of Bank Disclosure

Over the past years, a number of initiatives have sought toincrease the transparency of financial institutions.Among those initiatives, a push toward more disclosure ofinformation in published accounts has been prominent. Inparticular, policy proposals such as the New Basel Accord(Pillar 3) have introduced a number of disclosure requirementsthat aim to improve the market’s ability to assess a bank’s riskand value.Whether such initiatives are beneficial is an open question.Indeed, there are a number of good reasons to be sceptical.First, it can be argued that banks are inherently opaqueinstitutions, and increases in disclosure may not be able tomaterially change this. “The push for increased marketdiscipline and disclosure may shed light. But reformers shouldremember what they are dealing with. To use a popularmetaphor: banks may be the black holes of the universe—hugely powerful and influential, but to some irreducibleextent—unfathomable” (Morgan 2002, p. 888).[...]