Fair value, corporate governance, social responsibility disclosure and banks’ performance

Abstract

Purpose

The purpose of this paper is to investigate the interaction between mandatory disclosures and voluntary disclosures of banks and the information content of corporate disclosures on firm performance.

Design/methodology/approach

Based on the US-listed banks from 2007 to 2015, this paper examines the interplay among the fair-value measurement, corporate governance disclosure and voluntary social responsibility disclosure. In addition, the paper examines the extent of such disclosure of mandatory items (fair-value measurement) versus voluntary items (corporate governance and social responsibility issues) on banks’ performance in terms of their return on equity and return on asset.

Findings

This paper finds that banks with a higher social responsibility disclosure score and stronger corporate governance tend to have lower percentages of Level 3 fair-value assets. Banks with a higher Level 3 fair-value asset disclosure have a lower financial performance.

Practical implications

This paper provides evidence of the interplay of various corporate disclosures by banks and implies that banks use fair-value measurements to disguise their poor performance. The findings provide insights for the policymakers, investors and regulators to assess banks’ disclosure.

Originality/value

This paper extends the study of banks’ fair-value measurements and is the first study to examine the interaction between voluntary and mandatory disclosures. This study sheds lights on the theories of performativity, agency and stakeholder by demonstrating the information contents of corporate disclosures on firm performance.

Citation

Zhang, Y., Chong, G. and Jia, R. (2020), "Fair value, corporate governance, social responsibility disclosure and banks’ performance", Review of Accounting and Finance, Vol. 19 No. 1, pp. 30-47. https://doi.org/10.1108/RAF-01-2018-0016