Effect of risk management disclosure on the profitability of listed banks in Ghana

Abstract

Within the context of corporate reporting and disclosure, information on risk has become important because of the complexity of modern businesses and these complexities have exposed firms to a lot of risks. Aside calls for the study of risk management disclosure in different cultural context, the effects of risk management on the profitability of banks still remain an issue. Content analysis was employed to examine the annual reports of listed banks from 2012 to 2016. Fixed and random effects techniques were used to assess the effects of corporate governance and bank-specific characteristics on the extent and quality of risk management disclosure, and also the effect of risk management disclosure on bank profitability. The study reveals that the amount of risk management information disclosed by listed banks in Ghana is very encouraging, that is, compliance level of 69 and 56 percent respectively for extent and quality of risk disclosure. The regression results suggest that extent of risk management disclosure of listed banks in Ghana is determined by audit committee independence and liquidity, whereas the quality of risk management disclosure is influenced by audit committee independence and bank. Also, extent of risk management disclosure positively affects the profitability of listed banks. Based on the results, the author recommends that there should be a strict regulation by the supervisory bodies; Bank of Ghana, Ghana Stock Exchange and the Securities and Exchange Commission, to enhance the quantity and quality of risk disclosure by banks. In addition, audit committees of the banking institutions should positively play their vital role in ensuring that banks comply with Basel II and IFRS 7 requirements fully.