Value relevance of bank credit risk disclosure: “interventionist” and “non-interventionist” supervisory regimes

This paper aims to analyze the credit risk disclosure (CRD) practices of the banking industries of two countries characterized by different supervisory regimes, namely Canada (“non-interventionist” regime) and Italy (“interventionist” regime), and test whether such disclosures are value relevant for current and potential investors. We adopt a mixed content analysis methodological approach to examine qualitative and quantitative disclosures. This approach allows us to distinguish between mandatory and voluntary disclosures by considering both national and international regulatory requirements. Although there are relevant differences between the disclosure practices of Canadian and Italian banks, the overall quality of their disclosures is not significantly different. While Italian banks provide more detailed mandatory disclosures, Canadian banks disclose more information on a voluntary basis. We also find that both mandatory and voluntary CRDs are value relevant. In addition, we provide evidence that, compared to the “interventionist” regime, the “non-interventionist” regime is associated with an increased value-relevance of CRDs. We contribute to the literature by providing evidence on the level of informativeness of mandatory and voluntary CRDs, offering a detailed comparison of disclosures in two different supervisory regimes and assessing their advantages and disadvantages in terms of bank transparency and value relevance. These results are relevant not only for bank managers, but also for supervisors and policy makers to decide upon their level of interventionism in setting disclosure guidelines and requirements.