Operational risk has been acknowledged as a major source of material failures in financial firms. Despite the increased concern of financial institutions and their stakeholders on this topic, the literature that deals specifically with the operational risk disclosure in the banking system is scarce. The present research investigates the readability in transparency reports of Romanian banks, and focuses in particular on the operational risk disclosures. The sample consists of 13 commercial banks operating in Romania in 2017. A concise transparency report is characterized by clarity in the expression of concepts, usage of as few words as possible, limited use of technical terms and avoidance of highly generic disclosures. Drawing upon prior research, we expect that banks with lower levels of performance are foggier (i.e. less concise) in order to improve the image resulting from their transparency reports. Additionally, it is expected that the longer an entity has been established, the higher the quality of disclosures, thus the transparency reports of older banks are more concise compared to the recently established banks. Moreover, we posit that larger banks are more likely to provide more readable reports. The research is part of the larger debate related to disclosure and its various impacts on both the recipient and the giver of information. The main contribution is the innovative approach consisting in the textual analysis of transparency risk reports. To the best of our knowledge, we are not aware of any study that examined conciseness in the setting of operational risk disclosure by banks.
If the inline PDF is not rendering correctly, you can download the PDF file here.
Abu El Haija M. F. Al Hayek A. F. (2012) Operational Risk Disclosures in Jordanian Commercials Banks: It’s Enough International Research Journal of Finance and Economics 83
Anghelache C. Manole A. Anghel M. G. Soare D. V. (2016). Statistical-econometric model used to analyze the operational and insolvency risks. Theoretical and Applied Economics 3(608) 221-228;
Avram K.J. and Skully M. (2007). Australian banks’ disclosure of operational risk Monash Business Review Vol. 3 No. 2 1-9.
Bakar A.S.A. Ameer R. (2011). Readability of corporate social responsibility communication in Malaysia. Corporate Social Responsibility and Environmental Management 18 50–60.
Barakat A. Chernobai A. Wahrenburg M. (2014). Information asymmetry around operational risk announcements Journal of Banking and Finance 48 152–179
Barakat A. Khaled H. (2013) Bank governance regulation supervision and risk reporting: Evidence from operational risk disclosures in European banks International Review of Financial Analysis 30254–273;
Benaroch M. Chernobai A. Goldstein J. (2012) An internal control perspective on the market value consequences of IT operational risk events International Journal of Accounting Information Systems 13 357–381
Chernobai A Jorion P Yu F. (2011) The determinants of operational risk in U.S. financial institutions Journal of Financial and Quantitative Analysis 46(6)1683–725.
Cho C.H. Roberts R.W. Patten D.M. (2010). The language of US corporate environmental disclosure. Accounting Organizations & Society 35 431–443.
Cummins JD Lewis CM Wei R. (2006) The market value impact of operational loss events for U.S. banks and insurers. Journal of Banking and Finance 30(10)2605–34.
Dale E.D. Chall J.S. (1948) A Formula for Predicting Readability Educational Research Bulletin 27 11-19;
Dănescu T. Muntean A. (2008). Addressing Operational Risk by Using a Risk Based Internal Audit Approach: Benefits offered to Romanian Banking System. Applied Economics Business and Development. Retrieved from http://www.wseas.us/elibrary/conferences/2010/Tunisia/AEBD/AEBD-14.pdf ;
Dima A. M. (2009). Operational Risk Assessment Tools for Quality Management in Banking Services. Amfiteatru Economic11(26) 364 – 372.
Ebnöther S. P. Vanini A. McNeilP. Antolinez (2003) Operational Risk: A Practicioner’s View Journal of Risk 5.
Galloppo G. Rogora A. (2011) What has worked in operational risk? Global Journal of Business Research 5(3)
Gibbins M. Richardson A. Waterhouse J. (1990) The Management of Corporate Financial Disclosure: Opportunism Ritualism Policies and Processes Journal of Accounting Research 28(1) 121-143.
Gillet R Hübner G Plunus S. (2010) Operational risk and reputation in the financial industry. Journal of Banking and Finance 34(1) 224–35.
Helbok G. & Wagner C. (2006) Determinants of operational risk reporting in the banking industry. The Journal of Risk 9(1) pp. 49–74.
Hemrit W. Ben Arab M. (2011) The disclosure of operational risk in Tunisian insurance companies (2011) The Journal of Operational Risk 6(2) 69–111
Herghiligiu R. (2013). Operational Risk Disclosures in Romanian Commercial Banks. Journal of Public Administration Finance and Law4 171-178;
Hossain M. (2008) The Extent of Disclosure in Annual Reports of Banking Companies: The Case of India European Journal of Scientific Research 23(4) 659-680;
Janakiraman U. (2008) “Operational risk management in Indian Banks in the context of Basel II: a survey of the state of preparedness and challenges in developing the framework” Asia Pacific Journal of Finance and Banking Research 2(2) 26-44.
Leippold M. P. Vanini (2005) The quantification of operational risk Journal of Risk 8.
Linsley P.M. Shrives P.J. Crumpton M. (2006) Risk disclosure: an exploratory study of UK and Canadian banks Journal of Banking Regulation 7 (3/4) 268-82;
Matiș E. A. (2007). Operational Banking Risk Management – Research Performed at the Romanian Commercial Bank Retrieved from https://core.ac.uk/download/pdf/6304098.pdf;
Mehra Y.S. (2011) “Operational risk management in Indian Banks: impact of ownership and size on range of practices for implementation of advanced measurement approach”.
Melloni G. Caglio A. Perego P. (2017) Saying more with less? Disclosure conciseness completeness and balance in Integrated Reports Journal of Accounting and Public Policy 36 220–238.
Mocanu M. Stanciu V. (2015). Controlling in the Banking Industry. The Case of Romania. In Tadeusz Dudycz (Ed) The Essence and Measurement of Organizational Efficiency (221-228). Springer;
Oliver C. (1991) Strategic responses to institutional processes Academy of Management Review 16(1) 145-179.
Oliveira J. Rodrigues L.L. Craig R. (2011) Voluntary risk reporting to enhance institutional and organizational legitimacy Evidence from Portuguese banks. Journal of Financial Regulation and Compliance 2011 19(3) 271-288.
Plumlee M. Brown D. Hayes R.M. Marshall R.S. (2015) Voluntary environmental disclosure quality and firm value: further evidence. Journal of Accounting and Public Policy 34 336–361.
Power M. (2005) The invention of operational risk Review of International Political Economy 12:4 577-599
Sanchez-Ballesta J.P. Bernal Llorens (2010) M. Monitoring reputation and accountability in issuing banks in mid-nineteenth-century Spain. Explorations in Economic History 47(4) 403-19.
Stanciu V. (2010). Managing Operational Risk in Banks. Analele Științifice ale Universității “Alexandru Ioan Cuza” din Iași – Științe Economice 57 245-260;
Socol A. Iuga I. Gavrilă-Paven I. (2006). Procedures to manage of operational risk on the banking internal level - Romania’s Case International Academic Conference „National and Regional Economy VI” University of Herlany Slovakia 11-13 October 2006 354-359;
Sturm P. (2013). Operational and reputational risk in the European banking industry: The market reaction to operational risk events. Journal of Economic Behavior & Organization 85 191–206.
Sundmacher M. and Ford G. (2006). Operational risk disclosures in financial institutions. Working Paper. URL: http://ssrn.com/abstract=963244.
Ţurlea E. Mocanu M. Radu C. (2010). Corporate governance in the banking industry. Journal of Accounting and Management Information Systems3(9) 379-402;
Ţurlea E. Mocanu M. (2016). The profile of the internal auditor in the Romanian banking sector. Audit Financiar11(143) 1235-1245;
Wahlström G. (2006). Worrying but accepting new measurements: the case of Swedish bankers and operational risk. Critical Perspectives on Accounting17 493–522;
Wang M. Hussainey K. (2013) Voluntary forward-looking statements driven by corporate governance and their value relevance. Journal of Accounting and Public Policy 2013 32 26–49.