Empirical evidence on disclosure and risk-taking of banks in Ghana

Abstract

Purpose

This paper aims to empirically examine the relationship between disclosure and risk-taking of banks in Ghana. The study also aims to gain an insight into the general risk-taking behaviour of banks in Ghana for the period 2007-2011.

Design/methodology/approach

The study used panel regression model and relate risk-taking to disclosure, controlling for bank size, profitability, liquidity and treasury bill rate. Disclosure scores from a disclosure index are used as a measure of disclosure, likewise Z-score as a measure of total risk. Also, the ratio of provisions for loan losses to gross loans by each bank for each year was used to examine the general risk-taking behaviour of Ghanaian banks.

Findings

The study revealed that the election year and the immediate subsequent year are characterized by an increase in non-performing loans. Greater disclosure is associated with more risk-taking and vice versa. This implies that market discipline is not effective in Ghana. Treasury bill rate, profitability and liquidity were found to be economically meaningful and statistically significant in influencing risk-taking of banks in Ghana.

Originality/value

As there are relatively few studies conducted in this area, specifically among banks in Ghana, this study will broaden the scope of the literature on disclosure and risk-taking by providing empirical evidence.

Citation

Kuranchie-Pong, L., Bokpin, G.A. and Andoh, C. (2016), "Empirical evidence on disclosure and risk-taking of banks in Ghana", Journal of Financial Regulation and Compliance, Vol. 24 No. 2, pp. 197-212. https://doi.org/10.1108/JFRC-05-2015-0025