The dark side of stress tests: Negative effects of information disclosure

Goncharenko, Roman; Hledik, Juraj; Pinto, Roberto

doi:10.1016/j.jfs.2018.05.003

Cited by 15 publications

(11 citation statements)

References 22 publications

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“…Miihkinen (2012) finds that firm size, profitability, and foreign listing status were important determinants of disclosure in a sample of listed Finnish firms. Finally, Goncharenko et al (2018) present a model of the effect of information disclosure on banks' portfolio risk and show that information disclosure lowers the expected risk-adjusted profits for banks, especially for systemically important institutions.…”

Section: Evidence On the Determinants Of Risk Disclosurementioning

confidence: 99%

European Banking Union and bank risk disclosure: the effects of the Single Supervisory Mechanism

Altunbaş

Polizzi

Scannella

et al. 2021

Rev Quant Finan Acc

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This paper provides evidence on the impact of European Banking Union (BU) and the associated Single Supervisory Mechanism (SSM) on the risk disclosure practices of European banks. The onset of BU and the associated rules are considered as an exogenous shock that provides the setting for a natural experiment to analyze the effects of the new supervisory arrangements on bank risk disclosure practices. A Difference-in-Differences approach is adopted, building evidence from the disclosure practices of systemically important banks supervised by the European Central Bank (ECB) and other banks supervised by national regulators over the period 2012–2017. The main findings are that bank risk disclosure increased overall following BU but there was a weakening of disclosure by SSM-supervised banks relative to banks supervised by national authorities. We also find that the overall positive effect of the BU on bank disclosure is stronger for less profitable banks and in the most troubled economies of the Eurozone (GIPSI countries), while the negative effect on centrally supervised banks is stronger if bank CEOs act also as chairmen (CEO duality). We interpret these findings in light of the fact that the new institutional arrangements for bank supervision under which the ECB relies on local supervisors to collect the information necessary to act gives rise to inefficiencies with respect to the speed and completeness of the information flow between SSM supervised banks and the ECB, which are reflected in bank disclosure practices.

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Section: Evidence On the Determinants Of Risk Disclosurementioning

confidence: 99%

European Banking Union and bank risk disclosure: the effects of the Single Supervisory Mechanism

Altunbaş

Polizzi

Scannella

et al. 2021

Rev Quant Finan Acc

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“…Studies using data on European banks also confirm that stress tests offer valuable information to market participants (Petrella & Resti 2013) and may help the market detect fragile banks (Carboni et al 2017). 4 Finally, several recent studies focus on the potential spillover effects of the release of the stress test resultseither to other banks or to sovereigns (Breckenfelder & Schwaab 2018, Goncharenko et al 2018.…”

Section: Stress Tests and Market Implicationsmentioning

confidence: 99%

Do stress tests affect bank liquidity creation?

Nguyen

Ahmed

Chevapatrakul

et al. 2020

Journal of Corporate Finance

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“…it might imply an official endorsement of the health of an institution (Schuermann, 2013) or implicit assurance that regulators would in some way absorb losses in excess of the stress test estimates (Flannery, 2013). Goncharenko et al (2018) suggest that the information disclosure lowers the expected risk-adjusted profits for a non-negligible fraction of banks. In their empirical analysis of 2011 and 2014 stress tests, they conclude that the magnitude of this effect depends on the structure of the banking system.…”

Section: Literature Reviewmentioning

confidence: 99%

“…It can be viewed as an indicator of the size of impact from regulatory scrutiny. If the value of is very small, its effect (through the treatment indicator) on outcome is negligible, but if the value of is large enough it can have stronger effect and correspondingly larger implications (Georgescu et al, 2017;Goldstein and Sapra, 2014;Goncharenko et al, 2018).…”

Section: B Instrumental Variablementioning

confidence: 99%

Regulatory Stress Tests and Bank Responses

Janda

Kravtsov

2020

SSRN Journal

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In this paper, we investigate how the regulatory stress test framework in the European Union affects banks' investment decisions and portfolio choices. Using the causal inference and event study methodology, we document a substantial impact of EU-wide stress tests in 2011, 2014 and 2016 on the banks' portfolio strategies. The banks subject to regulatory stress tests tend to structure their portfolios with lower risk assets that is reflected in a decline in risk-weighted assets as compared to the control group. At the same time, the dynamic of realized risk that is measured by the proportion of nonperforming exposure in portfolios remains unaffected. The estimates based on two alternative subsamples indicate that the magnitude of such effect rise with the increase in the size of the bank´s assets.

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The dark side of stress tests: Negative effects of information disclosure

Cited by 15 publications

References 22 publications

European Banking Union and bank risk disclosure: the effects of the Single Supervisory Mechanism

European Banking Union and bank risk disclosure: the effects of the Single Supervisory Mechanism

Do stress tests affect bank liquidity creation?

Regulatory Stress Tests and Bank Responses

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