Disclosure, banks CDS spreads and the European sovereign crisis

We investigate the impact of banks disclosure on the evolution of their CDS spreads during the European sovereign crisis. The disclosure of information help investors in building expectations so disclosure may participate into the reduction of the information risk premium and reduces CDS spread. We analyze the CDS spread changes following the announcement of sovereign credit rating downgrades. We consider 16 dates in the period 2011-2013 and for each one, we assess the cumulative abnormal CDS spread change (CASC). We build two disclosure indexes: one general and one specifically dedicated to sovereign exposure.We show that the bank exposure to sovereign risk has a positive impact on the CASC. Disclosure about sovereign exposure has a negative impact on CASC showing that information reduce risk premiums. However, the global disclosure increases the CASC; investors may disapprove the disclosure of too much abundant and broad information.