The effects of bank characteristics on market risk disclosure : case of listed commercial banks in Kenya
The purpose of this study was to determine the effects of bank characteristics on market risk disclosure. Commercial banks need to be regularly monitored in order to monitor, manage and evaluate risky activities that may lead to loss of depositors’ funds or collapse the financial intermediation system. The relationship between four bank characteristics namely size of a bank, profitability of a bank, leverage of a bank and depositors’ knowledge were modeled against market risk disclosure. Both primary and secondary data were obtained for this study. Primary data was obtained through the use of questionnaires from depositors of listed commercial banks while secondary data was collected from financial reports, notes to accounts, Chairman’s and CEO’s reports and from Nairobi Securities Exchange for the years 2004 to 2009. The study found that 68% of variation in Market risk disclosure can be explained by size, profitability and leverage and depositors knowledge. The study also sought to compare market risk disclosure patterns before and after IFRS adoption. Before adoption of IFRS, larger banks and more profitable banks disclosed more market risks that they faced while highly leveraged banks disclosed less compared to the less leveraged banks. It was established that profitability and depositors knowledge were significant and positively influenced market risk disclosure while size of the bank and leverage were insignificant at 5% level of significance. The study also revealed that after adoption of IFRS disclosure standards, more profitable banks were more likely to disclose more market risks information than less profitable banks. In addition, highly leveraged banks have lower market risk disclosure levels compared to less leveraged banks. The study concluded that adoption of IRFS disclosure standards played a significant role in improving market risk disclosure. Profitability continued to play a critical role in signalling their superior performance and sound risk management while depositors’ knowledge increased respondents’ confidence in commercial banks. The study recommends a bigger sample and more bank characteristics should be studied in order to confirm or reject the findings of this study.