Does information disclosure reduce stock price volatility? A comparison of Islamic and conventional banks in Gulf countries

Abstract

Purpose

The purpose of this paper is to investigate whether higher disclosure levels at both Islamic and conventional banks are associated with higher stock price volatility in the member countries of the Gulf Cooperation Council (GCC).

Design/methodology/approach

To do this, the authors build a disclosure index (DI) for both types of banks and compare their transparency levels. After that, the authors evaluate the relationship between disclosure and stock price volatility for both conventional and Islamic banks (IBs) and include macro- and bank-level control factors to isolate the effect of disclosure from potentially confounding influences by employing panel data.

Findings

The author find that the significance of the DI on stock price volatility is economically negligible at both types of banks, suggesting that injecting more information into markets would raise stock price volatility only slightly and hence will not have much economically significant effect on stock price volatility in our sample countries. The authors discuss the policy implications of the findings.

Originality/value

The study fills the gap in the literature and assists in formulating appropriate regulation policies for corporate governance disclosure requirements. To the best of our knowledge, this is the first empirical study to investigate the impact of disclosure on reducing stock price volatility in the dual banking system of the GCC countries.

Citation

Azrak, T., Saiti, B., Kutan, A. and Engku Ali, E.R.A. (2021), "Does information disclosure reduce stock price volatility? A comparison of Islamic and conventional banks in Gulf countries", International Journal of Emerging Markets, Vol. 16 No. 8, pp. 1769-1792. https://doi.org/10.1108/IJOEM-06-2019-0466