Mandatory disclosure tone and bank risk-taking: Evidence from Europe

We examine the relationship between the tone of mandatory disclosures and bank risk insolvency to determine what this qualitative information may reveal about bank stability. By using text analysis and the context-specific text dictionaries of Loughran and McDonald, we find that qualitative informat...

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Bibliographic Details
Published in:Economics letters 2020-01, Vol.186, p.108531, Article 108531
Main Authors: Del Gaudio, Belinda L., Megaravalli, Amith V., Sampagnaro, Gabriele, Verdoliva, Vincenzo
Format: Article
Language:English
Subjects:
Bank stability
Banks
Dictionaries
Financial disclosure
Insolvency
Mandatory disclosure
Risk taking
Supervisors
Text analysis
Tone
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Summary:We examine the relationship between the tone of mandatory disclosures and bank risk insolvency to determine what this qualitative information may reveal about bank stability. By using text analysis and the context-specific text dictionaries of Loughran and McDonald, we find that qualitative information collected in a negative tone helps explain bank risk insolvency. This finding suggests that qualitative information through the mandatory disclosure tone could be used to detect the communication among banks, the market and supervisors. •Qualitative information may reveal about bank stability.•Negative tone helps explain bank-risk insolvency.•Qualitative information could be used to detect the tone in the communication among banks the market and supervisors.
ISSN:0165-1765
1873-7374
DOI:10.1016/j.econlet.2019.108531