The determinants and value relevance of risk disclosure in the Indonesian banking sector

• Main Author: Aryani, Dwi Nita
• Other Authors: Ryan, Bob ; Hussainey, Khaled
• Published: University of Gloucestershire 2016
• Subjects: 332.109598; HG1501 Banking
• Online Access: http://ethos.bl.uk/OrderDetails.do?uin=uk.bl.ethos.684177

The aim of the current study is to analyse the association between the determinants and the value relevance of risk disclosure in the Indonesian banking sector. The purpose will be derived into four research objective: to measure the extent of risk disclosure in the Indonesian banking sector; to compare the risk disclosure practice between listed and unlisted banks, and between Islamic and non-Islamic banks; to study the determinants of risk disclosure and what factors affect a bank's decision to disclose risk information; and to analyse the value relevance information on risk disclosure of listed banks, unlisted banks, Islamic banks, and non-Islamic banks. Agency theory, signalling theory, stakeholder theory, and communication theory were used for underpinning theory. The annual reports of 120 banks which released between 2008 and 2012 were employed for testing in this research. Risk disclosure was measured by the number of Indonesian risk keywords divided by the number of Indonesian sentences in annual reports. Firm value for listed banks was measured by Tobin’s Q. The Black Scholes Merton model was employed for measuring firm value of unlisted banks. The number of risk keywords, number of sentences, and risk disclosure in the Indonesian banks showed an upward trend. The delta of size, liquidity, profitability, leverage, and earnings reinvestment did not have association with the delta of risk disclosure in all banks, LB IB, NIB. The delta of firm value in all banks, LB, ULB, and NIB has an association with aggregate the delta of firm characteristics and the delta of risk disclosure. Risk disclosure in annual reports was not value relevant for stakeholders. This method will construct a new measurement of risk disclosure; and firm value for unlisted banks. The regulators, banks’ managers and bank supervisory should pay more attention to increasing the usefulness of disclosure, the completeness of the risk information, and how to deliver signals and information more understandably and readably for stakeholders. This research adds to the limited literature relating to earnings reinvestment, new measurement of risk disclosure, and firm value for unlisted banks. The results enrich agency, signalling, stakeholder, communication and dividend theories.