Size, profitability and risk level effects of accounting disclosures: a study on the Greek banking industry
Public and Municipal Finance
The credit crunch of 2007 and the ensuing Greek economic crisis of 2009 and its aftermath have brought back to surface the issue of risk disclosure and transparency in the Greek banking industry. Concerns over the Greek sovereign risk have spilled over both to regional banks and banks in other European countries. These have developed rapidly into a generalized retreat from risk-taking and credit contraction. This paper examines the under-researched Greek banking market owing to its topical and
... to its topical and regional spill-over effects. Inadequate transparency and disclosure about exposures has led to counterparty concerns and renewed strains in bank funding markets. Greek banks, now struggling with the need to increase provisions against bad debts, asset write-offs and with problems of liquidity as a result of being frozen out of the interbank lending market are completely reliant on the European Central Bank. Having as a starting point the debate regarding the way banks choose to publicly disclose risk related information, this study tries to examine the impact that Basel II had on the risk disclosure practices in the Greek banking sector. This paper examines the disclosure practices and their potential relationship with size, risk profile and profitability of the most actively traded Greek banks. The results show that while Basel II managed to raise the risk disclosing amounts in the annual reports of the Greek banks, some inadequacies still exist. The informational value of such disclosures is questioned, due to that little quantitative information is disclosed whereas favouritism towards qualitative and past related disclosures is revealed. Adding to that, no quasi-norms between the size, profitability or risk profile of the institutions and their risk disclosing quantities is revealed. Nonetheless, the disclosing policies and the quantity of disclosures have evolved, throughout the examined period in the Greek banking industry. Yet, transparency issues and quality problems regarding risk disclosure are still present owing to the high degree of secrecy of the internal Greek market.