Do disclosure and transparency affect bank’s financial performance?

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.

Notas explicativas explicam? análise da comunicação do gerenciamento de risco a partir de técnicas de text mining

“…Observa-se que na literatura já é possível encontrar evidências de que o disclosure de informações sobre gerenciamento de riscos de instituições financeiras apresenta relação positiva com: valorização das ações dos bancos (Jizi & Dixon, 2017), resultados financeiros (Oino, 2019), estabilidade (Del Gaudio et al, 2020) e governança (Nahar et al, 2020). Ademais, o nível de divulgação sobre riscos tem poder preditivo sobre a classificação de risco das instituições financeiras (Elamer et al, 2021) permitindo dirimir incertezas (Kim et al, 2019).…”

Capital and sustainability on performance: The Mediating Effect of Governance

“…Studies by Li (2008), Liao (2013), Melloni (2015), Oliveira (2010) and Siew (2013) are demonstrating similar results. Research conducted by Andriani Tisna (2016) on the banking industry during 2010-2014 shows that governance affects the company's financial performance, especially transparency (Oino, 2019). The research generated by Faradina (2016) during 2010-2014 shows that IC positively affects the company's financial performance.…”

“…The study on the role governance in companies showed that one of its components, namely transparency and disclosure, is proven to have an influence on financial performance (Oino, 2019). Research conducted by Ratmono, Nugrahini and Cahyonowati (2021) also shows that GCG will make a sustainability report the better it is presented, with it the higher the company's performance because it gets support from its stakeholders.…”

A Holistic Perspective on Bank Performance Using Regulation, Profitability, and Risk-Taking with a View on Ownership Concentration

“…Veracity (or issues of transparency and disclosure) of NPAs are usually assumed to be perfect, which may not be true all the time. This is another area to explore, and is not covered in the scope of the current study (Oino 2019). In the present study, it is assumed to be correct.…”

“…In addition to varied measures of bank performance, there are myriad factors that may impact it. A few among them are widely researched: regulation (Delis et al 2011;Klomp and De Haan 2015); transparency and disclosures (Baumann and Nier 2004;Oino 2019); competition or market power (Ariss 2010;Tabak et al 2015); intellectual capital (Buallay et al 2019); autonomy (Barnabas and Mekoth 2010;Lybek 1999); and ownership issues (Grassa et al 2019;Sarkar and Sarkar 2018;Ozili and Uadiale 2017). Among the many factors that can have a significant impact on bank performance, it is believed that ownership concentration can have the most influence.…”