Do disclosure and transparency affect bank’s financial performance?

an article by Isaiah Oino (Coventry University, UK) published in Corporate Governance Volume 19 Issue 6 (2019)

Abstract

Purpose
The purpose of this paper is to examine the impact of transparency and disclosure on the financial performance of financial institutions. The emphasis is on assessing transparency and disclosure; auditing and compliance; risk management as indicators of corporate governance; and understanding how these parameters affect bank profitability, liquidity and the quality of loan portfolios.

Design/methodology/approach
A sample of 20 financial institutions was selected, with ten respondents from each, yielding a total sample size of 200. Principal component analysis (PCA), with inbuilt ability to check for composite reliability, was used to obtain composite indices for the corporate governance indicators as well as the indicators of financial performance, based on a set of questions framed for each institution.

Findings
The analysis demonstrates that greater disclosure and transparency, improved auditing and compliance and better risk management positively affect the financial performance of financial institutions. In terms of significance, the results show that as the level of disclosure and transparency in managerial affairs increases, the performance of financial institutions – as measured in terms of the quality of loan portfolios, liquidity and profitability – increases by 0.3046, with the effect being statistically significant at the 1 per cent level. Furthermore, as the level of auditing and the degree of compliance with banking regulations increases, the financial performance of banks improves by 0.3309.

Research limitations/implications
This paper did not consider time series because corporate governance does not change periodically.

Practical implications
This paper demonstrates the importance of disclosure and transparency in managerial affairs because the performance of financial institutions, as measured in terms of loan portfolios, liquidity and profitability, increases by 0.4 when transparency and disclosure improve, with this effect being statistically significant at the 1 per cent level.

Originality/value
The use of primary data in assessing the impact of corporate governance on financial performance, instead of secondary data, is the primary novelty of this study. Moreover, PCA is used to assess the weight of the various parameters.

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Support for financial institutions increases government deficits in 2012

Issue number 10/2013 via Eurostat Statistics in focus

Upward impact of 0.4pp GDP in the EU and 0.6pp in the euro area.

In 2012 public interventions to support financial institutions, notably in the form of bank recapitalisations, increased government deficits in a majority of Member States that reported such interventions. The increase was particularly large in Greece (4.0 percentage points of GDP) and Spain (3.6pp GDP).

Full text (PDF 6pp)

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