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Voluntary risk reporting to enhance institutional and organizational legitimacy: Evidence from Portuguese banks

Jonas Oliveira (University of Aveiro, Aveiro, Portugal)
Lúcia Lima Rodrigues (University of Minho, Braga, Portugal)
Russell Craig (University of Canterbury, Christchurch, New Zealand)

Journal of Financial Regulation and Compliance

ISSN: 1358-1988

Article publication date: 26 July 2011

Abstract

Purpose

This paper aims to explore the factors that affected the voluntary risk‐related disclosures (RRD) in the individual annual reports for 2006 of Portuguese banks. It also explores the extent to which those reports conformed to Basel II requirements in terms of the voluntary disclosure of operational risk and capital structure and adequacy matters.

Design/methodology/approach

The authors conduct a content analysis of the annual reports of a sample of 111 banks. Voluntary operational risk and capital structure and adequacy disclosures were assessed using a list of disclosure categories that were developed from the Third Pillar disclosure requirements of the Basel II Accord.

Findings

Stakeholder monitoring and corporation reputation are crucial factors that explain the risk reporting practices observed. Voluntary risk reporting appears to enhance legitimacy for two major reasons: first, by fulfilling institutional pressures to assure the effectiveness of market discipline; and second, by managing stakeholder perception of a corporation's reputation.

Originality/value

The voluntary RRD observed are shown to be explained by legitimacy theory and resources‐based perspectives. This theoretical framework has not been tested hitherto in explaining the motives for banks to make voluntary RRD.

Keywords

Citation

Oliveira, J., Lima Rodrigues, L. and Craig, R. (2011), "Voluntary risk reporting to enhance institutional and organizational legitimacy: Evidence from Portuguese banks", Journal of Financial Regulation and Compliance, Vol. 19 No. 3, pp. 271-289. https://doi.org/10.1108/13581981111147892

Publisher

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Emerald Group Publishing Limited

Copyright © 2011, Emerald Group Publishing Limited