Working Paper

Information Disclosures, Default Risk, and Bank Value

Abstract: This paper investigates the causal effects of voluntary information disclosures on a bank's expected default probability, enterprise risk, and value. I measure disclosure via a self-constructed index for the largest 80 U.S. bank holding companies for the period 1998-2011. I provide evidence that a bank's management responds to a plausibly exogenous deterioration in the supply of public information by increasing its voluntary disclosure, which in turn improves investors' assessment of the bank risk and value. This evidence suggests that disclosure may alleviate informational frictions and lead to a more efficient allocation of risk and return.

Keywords: Disclosure; default probability; firm value; risk management; asymmetric information; corporate governance;

https://doi.org/10.17016/FEDS.2015.104

Bibliographic Information

Provider: Board of Governors of the Federal Reserve System (U.S.)

Part of Series: Finance and Economics Discussion Series

Publication Date: 2015-11-17

Number: 2015-104

Pages: 43 pages