What you don’t know won’t hurt you: Market Monitoring and Bank Supervisors’ Preference for Private Information

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Abstract

We exploit cross-country variation in banks’ confidential reporting requirements under COREP, the common European supervisory risk reporting framework, as an indicator for banking supervisors’ preference for private information. Our results suggest that a stronger preference for confidential reporting is associated with significantly lower trading volume, return volatility, and absolute returns around banks’ earnings announcements. These findings are independent of the level of countries’ stock market development and supervisors’ resources and legal power, and are consistent with the idea that investors perceive banks’ public reporting to be less informative when supervisors have a strong private informational advantage. Our study adds to the literature on the influence of bank supervisors’ institutional characteristics on market discipline, and highlights the role of private supervisory knowledge in shaping investors’ monitoring incentives.
Original languageEnglish
Article number106572
JournalJournal of Banking and Finance
Volume143
Early online date7 Jun 2022
DOIs
Publication statusE-pub ahead of print - 7 Jun 2022

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