Do disclosure and transparency affect bank’s financial performance?

Research output: Contribution to journalArticle

Abstract

Purpose: The purpose of this paper is to examine the impact of transparency and disclosure on the financial performance of financial institutions. The emphasis is on assessing transparency and disclosure; auditing and compliance; risk management as indicators of corporate governance; and understanding how these parameters affect bank profitability, liquidity and the quality of loan portfolios. Design/methodology/approach: A sample of 20 financial institutions was selected, with ten respondents from each, yielding a total sample size of 200. Principal component analysis (PCA), with inbuilt ability to check for composite reliability, was used to obtain composite indices for the corporate governance indicators as well as the indicators of financial performance, based on a set of questions framed for each institution. Findings: The analysis demonstrates that greater disclosure and transparency, improved auditing and compliance and better risk management positively affect the financial performance of financial institutions. In terms of significance, the results show that as the level of disclosure and transparency in managerial affairs increases, the performance of financial institutions – as measured in terms of the quality of loan portfolios, liquidity and profitability – increases by 0.3046, with the effect being statistically significant at the 1 per cent level. Furthermore, as the level of auditing and the degree of compliance with banking regulations increases, the financial performance of banks improves by 0.3309. Research limitations/implications: This paper did not consider time series because corporate governance does not change periodically. Practical implications: This paper demonstrates the importance of disclosure and transparency in managerial affairs because the performance of financial institutions, as measured in terms of loan portfolios, liquidity and profitability, increases by 0.4 when transparency and disclosure improve, with this effect being statistically significant at the 1 per cent level. Originality/value: The use of primary data in assessing the impact of corporate governance on financial performance, instead of secondary data, is the primary novelty of this study. Moreover, PCA is used to assess the weight of the various parameters.

Original languageEnglish
Pages (from-to)(In-Press)
Number of pages18
JournalGovernance
Volume(In-Press)
Early online date9 Aug 2019
DOIs
Publication statusE-pub ahead of print - 9 Aug 2019

Fingerprint

Transparency
Financial performance
Disclosure
Financial institutions
Corporate governance
Liquidity
Auditing
Loan portfolio
Profitability
Risk management
Principal component analysis
Design methodology
Composite index
Secondary data
Sample size
Bank profitability
Banking regulation
Novelty

Keywords

  • Corporate governance
  • Financial institutions
  • Financial performance
  • Principal component analysis

ASJC Scopus subject areas

  • Business, Management and Accounting (miscellaneous)

Cite this

Do disclosure and transparency affect bank’s financial performance? / Oino, Isaiah.

In: Governance, Vol. (In-Press), 09.08.2019, p. (In-Press).

Research output: Contribution to journalArticle

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