Niranjan Chipalkatti, Massimo DiPierro, Carl Luft and John Plamondon
In 2009, effective the second-quarter, the financial accounting standards board mandated that all banks need to disclose the fair value of loans in their 10-Q filings in addition…
Abstract
Purpose
In 2009, effective the second-quarter, the financial accounting standards board mandated that all banks need to disclose the fair value of loans in their 10-Q filings in addition to their 10-K filings. This paper aims to investigate whether these disclosures reduced the level of information asymmetry about the riskiness of bank loan portfolios during the financial crisis.
Design/methodology/approach
The paper examines the impact of these disclosures on the bid-ask spread of a panel of 246 publicly traded bank holding companies. The spread serves as a proxy for information asymmetry and the ratio of the fair value of a bank’s loan portfolio to its book value is a proxy for the credit and liquidity risk associated with the same. The reaction to the first-quarter filing serves as a control to assess the reaction at the time of the second-quarter filing.
Findings
There is a significant negative association between bid-ask spread and the ratio indicating that the fair value information was useful in reducing information asymmetry during the financial crisis. A pattern was observed in the information dissemination related to the fair value of loans that is consistent with the literature that documents a delayed investor reaction to complex financial information.
Originality/value
Investors may use the fair value information to better assess the risk profile of a BHC’s loan portfolio. Also, loan fair values provide managers with data to better implement stress test models and determine optimal capital buffers.
Details
Keywords
Anna Rita Dipierro, Pierluigi Toma and Massimo Frittelli
Whether environmental, social and governance (ESG) factors are a curse or a blessing in the run for performance is still a burning issue. This is all the more true for banks, as…
Abstract
Purpose
Whether environmental, social and governance (ESG) factors are a curse or a blessing in the run for performance is still a burning issue. This is all the more true for banks, as their call for action in ESG dimensions clashes with evidence of scandals. As a more aligned to reality view, we propose to regard the mistreatment of ESG issues, both theoretically and empirically, as an undesirable output of banks' everyday activity. Empirically, we question whether 128 leading banks worldwide neglected the minimisation of ESG controversies (ESGC) in pursuing traditional productive efficiency, over the timespan 2011–2021.
Design/methodology/approach
To our end, we use oriented distance functions according to the nonparametric efficiency approach of data envelopment analysis (DEA). This framework accounts for undesirable outputs.
Findings
Being inefficient in the ESGC domain is not a necessary evil to achieve productive efficiency. Instead, incurring in higher ESGC negatively affects productive efficiency, by causing future decrease of reputation and performance.
Originality/value
We propose a new paradigm of banks’ activity and related efficiency evaluation. In so doing, we favour a real dimension of banks’ engagement in ESG concerns.