IDEAS home Printed from https://ideas.repec.org/a/eco/journ1/2016-03-30.html
   My bibliography  Save this article

An Investigation into the Determinants of Risk Disclosure in Banks: Evidence from Financial Sector of Pakistan

Author

Listed:
  • Khurram Ashfaq

    (Jiangxi University of Finance & Economics Nanchang, China,)

  • Rui Zhang

    (Jiangxi University of Finance & Economics Nanchang, China,)

  • Abdul Munaim

    (Government College University Faisalabad, Pakistan,)

  • Naveed Razzaq

    (Jiangxi University of Finance & Economics Nanchang, China.)

Abstract

The purpose of this paper is to find the determinants of quantity as well as quality of the risk disclosures in annual reports of banking sector of Pakistan. The paper employs the word count approach to measure the quantity of risk disclosures in annual reports whereas to measure the risk disclosure quality (RDQ), RDQ index is adapted from the study by Barakat and Hussainey in 2013 after making some changes. The researcher selected a data sample on desired variables for a period of 7-year (2008-2014) through 31 scheduled banks (excluding 7 Foreign Banks) and run generalized least square as the researcher supposed there was an effect of endogeneity in the model. The researcher found confirmation that, banks with a higher proportion of independent non-executive board directors, lower ownership proportion of executive management, banks with a high asset value and banks having non-governmental ownership tend to present to their stakeholders a higher degree of risk disclosure in terms of volume of information as well as quality of the disclosure. Practically, the results recommend that there should be strict regulations by the supervisory body to enhance the quantity and quality of risk disclosure by banks in their annual reports. Further, audit committees of the banking institutions should positively play their vital role in this regard. As another practical suggestion, the findings demonstrate that banking institutions operating in Pakistan may improve their own RDQ and quantity by appointing independent outside board directors and ensuring the audit committee activities as effective monitors of risk disclosure and advisors for risk disclosure management at bank level.

Suggested Citation

  • Khurram Ashfaq & Rui Zhang & Abdul Munaim & Naveed Razzaq, 2016. "An Investigation into the Determinants of Risk Disclosure in Banks: Evidence from Financial Sector of Pakistan," International Journal of Economics and Financial Issues, Econjournals, vol. 6(3), pages 1049-1058.
  • Handle: RePEc:eco:journ1:2016-03-30
    as

    Download full text from publisher

    File URL: http://www.econjournals.com/index.php/ijefi/article/download/2299/pdf
    Download Restriction: no

    File URL: http://www.econjournals.com/index.php/ijefi/article/view/2299/pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Ntim, Collins G. & Lindop, Sarah & Thomas, Dennis A., 2013. "Corporate governance and risk reporting in South Africa: A study of corporate risk disclosures in the pre- and post-2007/2008 global financial crisis periods," International Review of Financial Analysis, Elsevier, vol. 30(C), pages 363-383.
    2. Philip M. Linsley & Philip J. Shrives, 2005. "Examining risk reporting in UK public companies," Journal of Risk Finance, Emerald Group Publishing, vol. 6(4), pages 292-305, August.
    3. Roxana HERGHILIGIU, 2013. "Operational Risk Disclosure In Romanian Commercial Banks," Journal of Public Administration, Finance and Law, Alexandru Ioan Cuza University, Faculty of Economics and Business Administration, vol. 4(4), pages 171-178, December.
    4. Dulacha G. Barako & Phil Hancock & H. Y. Izan, 2006. "Factors Influencing Voluntary Corporate Disclosure by Kenyan Companies," Corporate Governance: An International Review, Wiley Blackwell, vol. 14(2), pages 107-125, March.
    5. Linsley, Philip M. & Shrives, Philip J., 2006. "Risk reporting: A study of risk disclosures in the annual reports of UK companies," The British Accounting Review, Elsevier, vol. 38(4), pages 387-404.
    6. Kelton, Andrea S. & Yang, Ya-wen, 2008. "The impact of corporate governance on Internet financial reporting," Journal of Accounting and Public Policy, Elsevier, vol. 27(1), pages 62-87.
    7. Barakat, Ahmed & Hussainey, Khaled, 2013. "Bank governance, regulation, supervision, and risk reporting: Evidence from operational risk disclosures in European banks," International Review of Financial Analysis, Elsevier, vol. 30(C), pages 254-273.
    8. Jonas Oliveira & Lúcia Lima Rodrigues & Russell Craig, 2011. "Voluntary risk reporting to enhance institutional and organizational legitimacy," Journal of Financial Regulation and Compliance, Emerald Group Publishing Limited, vol. 19(3), pages 271-289, July.
    9. Jannis Bischof, 2009. "The Effects of IFRS 7 Adoption on Bank Disclosure in Europe," Accounting in Europe, Taylor & Francis Journals, vol. 6(2), pages 167-194, December.
    10. Hany Elzahar & Khaled Hussainey, 2012. "Determinants of narrative risk disclosures in UK interim reports," Journal of Risk Finance, Emerald Group Publishing, vol. 13(2), pages 133-147, February.
    11. Eng, L. L. & Mak, Y. T., 2003. "Corporate governance and voluntary disclosure," Journal of Accounting and Public Policy, Elsevier, vol. 22(4), pages 325-345.
    12. Jensen, Michael C. & Meckling, William H., 1976. "Theory of the firm: Managerial behavior, agency costs and ownership structure," Journal of Financial Economics, Elsevier, vol. 3(4), pages 305-360, October.
    13. Laeven, Luc & Levine, Ross, 2009. "Bank governance, regulation and risk taking," Journal of Financial Economics, Elsevier, vol. 93(2), pages 259-275, August.
    14. Abraham, Santhosh & Cox, Paul, 2007. "Analysing the determinants of narrative risk information in UK FTSE 100 annual reports," The British Accounting Review, Elsevier, vol. 39(3), pages 227-248.
    15. Jing Li & Richard Pike & Roszaini Haniffa, 2008. "Intellectual capital disclosure and corporate governance structure in UK firms," Accounting and Business Research, Taylor & Francis Journals, vol. 38(2), pages 137-159.
    16. Klein, April, 2002. "Audit committee, board of director characteristics, and earnings management," Journal of Accounting and Economics, Elsevier, vol. 33(3), pages 375-400, August.
    17. Chunxin Jia & Shujun Ding & Yuanshun Li & Zhenyu Wu, 2009. "Fraud, Enforcement Action, and the Role of Corporate Governance: Evidence from China," Journal of Business Ethics, Springer, vol. 90(4), pages 561-576, December.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Barakat, Ahmed & Hussainey, Khaled, 2013. "Bank governance, regulation, supervision, and risk reporting: Evidence from operational risk disclosures in European banks," International Review of Financial Analysis, Elsevier, vol. 30(C), pages 254-273.
    2. Rihab Grassa & Nejia Moumen & Khaled Hussainey, 2021. "What drives risk disclosure in Islamic and conventional banks? An international comparison," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(4), pages 6338-6361, October.
    3. Ibrahim, Awad Elsayed Awad & Hussainey, Khaled & Nawaz, Tasawar & Ntim, Collins & Elamer, Ahmed, 2022. "A systematic literature review on risk disclosure research: State-of-the-art and future research agenda," International Review of Financial Analysis, Elsevier, vol. 82(C).
    4. Khandelwal, Chandni & Kumar, Satish & Madhavan, Vinodh & Pandey, Nitesh, 2020. "Do board characteristics impact corporate risk disclosures? The Indian experience," Journal of Business Research, Elsevier, vol. 121(C), pages 103-111.
    5. Ntim, Collins G. & Lindop, Sarah & Thomas, Dennis A., 2013. "Corporate governance and risk reporting in South Africa: A study of corporate risk disclosures in the pre- and post-2007/2008 global financial crisis periods," International Review of Financial Analysis, Elsevier, vol. 30(C), pages 363-383.
    6. Salem Boumediene & Fatma Ezzahra Abdallah & Salma Ben Moussa & Emna Boumediene, 2022. "Internal Corporate Governance Mechanisms And Risk Disclosure: Evidence From Tunisia," Accounting & Taxation, The Institute for Business and Finance Research, vol. 14(1), pages 15-30.
    7. Diana Weekes‐Marshall, 2022. "A developing country's commercial banking risk governance disclosures: Post‐financial crisis," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 27(3), pages 3265-3286, July.
    8. Moumen, Néjia & Ben Othman, Hakim & Hussainey, Khaled, 2016. "Board structure and the informativeness of risk disclosure: Evidence from MENA emerging markets," Advances in accounting, Elsevier, vol. 35(C), pages 82-97.
    9. Ahmed A. Elamer & Collins G. Ntim & Hussein A. Abdou & Alaa Mansour Zalata & Mohamed Elmagrhi, 2019. "The impact of multi-layer governance on bank risk disclosure in emerging markets: the case of Middle East and North Africa," Accounting Forum, Taylor & Francis Journals, vol. 43(2), pages 246-281, April.
    10. Neifar, Souhir & Jarboui, Anis, 2018. "Corporate governance and operational risk voluntary disclosure: Evidence from Islamic banks," Research in International Business and Finance, Elsevier, vol. 46(C), pages 43-54.
    11. Nadezda Gulko & Catriona Hyde & Nina Seppala, 2017. "Disclosure of corporate risks and governance before, during and after the global financial crisis: case study in the UK construction industry in 2006–2009," International Journal of Disclosure and Governance, Palgrave Macmillan, vol. 14(3), pages 207-223, August.
    12. Ridhima Saggar & Balwinder Singh, 2019. "Drivers of Corporate Risk Disclosure in Indian Non-financial Companies: A Longitudinal Approach," Management and Labour Studies, XLRI Jamshedpur, School of Business Management & Human Resources, vol. 44(3), pages 303-325, August.
    13. Ntim, Collins G., 2016. "Corporate governance, corporate health accounting, and firm value: The case of HIV/AIDS disclosures in Sub-Saharan Africa," The International Journal of Accounting, Elsevier, vol. 51(2), pages 155-216.
    14. Vitolla, Filippo & Raimo, Nicola & Campobasso, Francesco & Giakoumelou, Anastasia, 2023. "Risk disclosure in sustainability reports: Empirical evidence from the energy sector," Utilities Policy, Elsevier, vol. 82(C).
    15. Shivaani, M.V. & Agarwal, Nishant, 2020. "Does competitive position of a firm affect the quality of risk disclosure?," Pacific-Basin Finance Journal, Elsevier, vol. 61(C).
    16. Alessandra Allini & Francesca Manes Rossi & Riccardo Macchioni, 2014. "Do Corporate Governance Characteristics Affect Non-Financial Risk Disclosure in Government-owned Companies? The Italian Experience," FINANCIAL REPORTING, FrancoAngeli Editore, vol. 2014(1), pages 5-31.
    17. Francesco De Luca & Andrea Cardoni & Ho-Tan-Phat Phan & Evgeniia Kiseleva, 2020. "Does Structural Capital Affect SDGs Risk-Related Disclosure Quality? An Empirical Investigation of Italian Large Listed Companies," Sustainability, MDPI, vol. 12(5), pages 1-20, February.
    18. Rodríguez Domínguez, Luis & Noguera Gámez, Ligia Carolina, 2014. "Corporate reporting on risks: Evidence from Spanish companies," Revista de Contabilidad - Spanish Accounting Review, Elsevier, vol. 17(2), pages 116-129.
    19. Hichem Khlif & Kamran Ahmed & Mohsen Souissi, 2017. "Ownership structure and voluntary disclosure: A synthesis of empirical studies," Australian Journal of Management, Australian School of Business, vol. 42(3), pages 376-403, August.
    20. Abdelrehim, Neveen & Linsley, Philip & Verma, Shraddha, 2017. "Understanding risk disclosures as a function of social organisation: A neo-Durkheimian institutional theory-based study of Burmah Oil Company 1971–1976," The British Accounting Review, Elsevier, vol. 49(1), pages 103-116.

    More about this item

    Keywords

    Risk Disclosure Quality; Agency Theory; Corporate Governance; Risk Management;
    All these keywords.

    JEL classification:

    • M40 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - General

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eco:journ1:2016-03-30. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Ilhan Ozturk (email available below). General contact details of provider: http://www.econjournals.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.