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Bank governance, regulation, supervision, and risk reporting: Evidence from operational risk disclosures in European banks

Barakat, Ahmed; Hussainey, Khaled

Authors

AHMED BARAKAT Ahmed.Barakat@nottingham.ac.uk
Assistant Professor in Banking

Khaled Hussainey



Abstract

This paper investigates the direct and joint effects of bank governance, regulation, and supervision on the quality of risk reporting in the banking industry, as proxied for by operational risk disclosure (ORD) quality in European banks. After controlling for the endogeneity between bank stability and risk reporting quality, we find that banks having a higher proportion of outside board directors, lower executive ownership, concentrated outside non-governmental ownership, and more active audit committee, and operating under regulations promoting bank competition (i.e., less stringent entry to banking requirements) provide ORD of higher quality. In addition, we find that the contribution of bank supervisors to the enhancement of ORD quality depends on the ownership structure of the bank. Specifically, powerful and independent bank supervisors mitigate the incentives for entrenched bank executives to withhold voluntary ORD. Moreover, bank supervisors and largest shareholders perform substitutive roles in monitoring the bank management's compliance with mandatory ORD requirements. For the sake of enhancing risk reporting quality in banks, our findings recommend sustaining board independence, enhancing audit committee activity, easing entry to banking requirements, and promoting a more proactive role for bank supervisors.

Citation

Barakat, A., & Hussainey, K. (2013). Bank governance, regulation, supervision, and risk reporting: Evidence from operational risk disclosures in European banks. International Review of Financial Analysis, 30, 254-273. https://doi.org/10.1016/j.irfa.2013.07.002

Journal Article Type Article
Acceptance Date Apr 1, 2013
Online Publication Date Jul 13, 2013
Publication Date 2013-12
Deposit Date Oct 5, 2017
Publicly Available Date Mar 29, 2024
Journal International Review of Financial Analysis
Print ISSN 1057-5219
Electronic ISSN 1057-5219
Publisher Elsevier
Peer Reviewed Peer Reviewed
Volume 30
Pages 254-273
DOI https://doi.org/10.1016/j.irfa.2013.07.002
Keywords Bank regulation and supervision, Basel II (Pillar 3), Corporate governance, European banks, Operational risk disclosure
Public URL https://nottingham-repository.worktribe.com/output/1000393
Publisher URL http://www.sciencedirect.com/science/article/pii/S1057521913000823