Determinants of operational risk reporting in the banking industry

Günther Helbok, Christian Wagner

Abstract

ABSTRACT

Motivated by the recognition of operational risk management as being crucial for banks and the importance of adequate reporting for enhancing market discipline, the present paper investigates operational risk disclosure practices in the period 1998 to 2001. Although reporting was not mandatory at that time, disclosure increased in both extent and content. Consistent with arguments based on corporate finance theory, empirical evidence indicates that financial institutions with a lower equity/assets ratio and/or profitability ratio give greater importance to disclosing their assessment and management of operational risks, whereas those with higher ratios choose a lower disclosure stance.