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Readability and banks’ risk-taking behavior: Evidence from GCC

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  • Abu-Abbas, Bassam M.
  • Hassan, Mostafa K.

Abstract

We investigate the relationship between annual reports’ text readability and bank risk-taking in the Gulf Cooperation Council (GCC) countries. We find that easy-to-read annual reports are associated with a higher probability of banks’ insolvency. This finding suggests that banks with higher risks have a greater incentive to reduce information asymmetry, resulting in easy-to-read annual reports to gain the trust of the banks’ investors. The result is also attributable to the fact that GCC banks have a tight culture and formal procedures that bank managers rely upon to manage uncomfortable circumstances like risk-taking behavior. Our study findings also suggest that the traditional dynamics of market discipline theory do not effectively operate within the GCC banking environment. This might be attributed to the inadequate governance frameworks established for these financial institutions.

Suggested Citation

  • Abu-Abbas, Bassam M. & Hassan, Mostafa K., 2024. "Readability and banks’ risk-taking behavior: Evidence from GCC," Research in International Business and Finance, Elsevier, vol. 70(PA).
    • Handle: RePEc:eee:riibaf:v:70:y:2024:i:pa:s0275531924001600
    DOI: 10.1016/j.ribaf.2024.102367
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    More about this item

    Keywords

    Annual disclosure; Text readability; Bank risk-taking; Gulf Cooperation Council;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation
    • N25 - Economic History - - Financial Markets and Institutions - - - Asia including Middle East

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