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Title: Maintaining systemic stability by enhancing information disclosures in the banking industry
Author: Miao, Yusong
ISNI:       0000 0004 6425 3840
Awarding Body: University of Liverpool
Current Institution: University of Liverpool
Date of Award: 2017
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Information disclosure is crucial especially considering the functioning of market efficiency suggested by finance theories and the need of market regulation required by authorities. However, over a long period of time, financial institutions have held ambiguous attitudes towards the regulation of information disclosure such that financial institutions always seek the business environment with more economic freedom and less regulation of information disclosure. In particular, the banking industry is always an opaque sector in our economy even though the banking industry is always under strict scrutiny from authorities. Inappropriate regulation of the banking industry was blamed for the 2008 financial crisis which originated in the US, as poor information reporting and intended information makeup had fooled the market which resulted in the abrupt market turmoil in 2008. Considering the profound meaning of information disclosure in finance and the significant role of the banking industry in our economy, this thesis investigates issues regarding information disclosure in the banking industry. This research finds that the banking industry has positively responded to the call from the Basel Committee for the past two decades by enhancing banking information disclosures. Whilst, on average, there is a negative impact on stock price by the release of annual reports in the banking industry, which implies that the market generally views the information within the annual reports as bad news over this period. Moreover, the negative response to the annual report release demonstrates a time-lagged manner, which brings us more to think about market behaviours when processing complicated information and the definition of market efficiency. Investors in the market can treat this finding as a potential 'calendar effect' and manage their risks more carefully around the date of annual report release. Two relationships are tested using the data of the banking industry, which are the relationship between market valuation and information disclosure and the relationship between stock return volatility and information disclosure. Contrary to the general finding in previous research which suggests that increased information disclosure is associated with higher market valuation, the empirical finding in the current research indicates that increased information disclosure is associated with lower market valuation. The argument which states that increased information disclosure is helpful to boost market valuation probably omits the nature of the information (bad news or good news), and the banks in the studying period of the argument were filled with good news, which leads to a biased conclusion. Meanwhile, the empirical finding in the current research suggests that increased information disclosure is associated with lower stock return volatility, which provides additional evidence to the debatable issue whether increased information disclosure would mitigate stock return volatility. Although, both the event study and the regression analysis have triggered doubts about the beneficial impact on market valuation by increased information disclosures, alongside the concerns of privacy and cost when disclosing information suggested by previous research, this research still firmly believes that the potential benefits of information disclosure would outweigh the disadvantages of information disclosure particularly considering the overall stability and safety of our economy. Maybe the statement by Faust and Svensson (2001) can be applied here that increased information disclosure in the banking industry is generally and socially beneficial but frequently bad for banks.
Supervisor: Henry, Ólan T. ; Goyal, Abhinav K. Sponsor: Not available
Qualification Name: Thesis (Ph.D.) Qualification Level: Doctoral