Risk Disclosure Norms: Comparison Across the Globe and Impact on Shareholder s Wealth in Indian Banking Industry

Abstract

In recent time a lot of emphasis is given to the topic of market discipline in banking industry. The third pillar of BASEL II requires the bank activities to be transparent to the general public. For this, the bank is supposed to release relevant financial data in their financial statement in a timely fashion to the public. This might enable depositors to better evaluate bank condition in terms of probability of default and status of its credit rating which will help them in diversify their portfolio accordingly. Realizing the importance of this topic we conducted our research in this discipline by analysing the nature and extent of public disclosures in various countries across the globe. For our analysis we selected nine countries from various parts of world which include Russia, Australia, New-Zealand, China, USA, Dubai, Mauritius, Brazil and India. We compared extent of disclosures of banks in foreign countries with their Indian counterparts which gave us the picture of public disclosure in Indian Banking Industry. Further, we tried to find out the impact of policy announcement of risk disclosure norms on shareholder s wealth in Indian Banking Industry using EVENT STUDY method. We covered the risk disclosure policy announcement of past eight years. Bank ex is taken as the proxy to find out the abnormal return of disclosure announcement on banking industry as whole. We also tried to find out the difference between the pattern of abnormal return of private and public sector banks, for this we chose four banks out of which two are public sector banks (SBI, Bank of Baroda) and remaining two are from private sector (HDFC, Axis bank).