Do Large European Banks Differ in their Derivative Disclosure Practices? A Cross-country Empirical Study.

Abstract

Risk disclosure has strategic importance for the efficiency of financial markets and overall financial stability. It plays a pivotal role in strengthening market discipline and building trust to improve relationships with stakeholders in banking. Risk reporting has taken a growing importance in banking over the last years. The topic of this paper is derivative reporting in banking. The authors employ content analysis to conduct an empirical study on a sample of large European banks. The authors propose a hybrid scoring model for the assessment of derivative disclosure in banking institutions. The methodology employed in this research is able to capture a considerable amount of information because it combines the characteristics of a quantitative and qualitative analysis. The paper provides evidences that banks differ in their derivative reporting, even though they are subject to similar regulatory requirements and accounting standards. This empirical analysis shows that there is room to improve various aspects of derivatives disclosure in banking and poses some questions that researchers may develop with further empirical analysis. The paper also discusses the potential policy implications of the research findings for practitioners, bank regulators, and accounting standard setters.