Does risk disclosure reporting quality reduce credit risk of GCC conventional and Islamic banks?

ABSTRACT

This study measures the degree of corporate risk disclosure and examines its impact on the credit risk of banks listed on the GCC financial markets during the period 2007–2021. The results of the content analysis show a low degree of overall risk disclosure index and sub-risk categories, except for financial risk disclosure, for all GCC-listed banks. The effect of the degree of risk disclosure on credit risk is examined by applying a robust generalized method of moment system estimation (GMM) to dynamic panel data. The results of the GMM show that the impact of disclosures of strategic risk, operational risk, financial risk, damage risk, and risk management vary from one country to another, but overall, they are positively associated with the financial stability of all GCC-listed banks. In terms of comparison, the results show overall significant differences in credit risk, strategic risk disclosure, operational risk disclosure, operational risk disclosure, firms’ damage risk disclosure, and risk management disclosure between conventional and Islamic banks as well across GCC countries.

KEYWORDS:

• Credit risk modeling
• risk disclosures
• annual reports
• dynamic panel data analysis

JEL CLASSIFICATION:

• C33
• G32
• G34

Disclosure statement

No potential conflict of interest was reported by the author(s).

Author contributions

All authors contributed equally. The authors conceived and designed the project, collected the data, performed the empirical analysis, and wrote the paper.

Notes

1 Algeria, Bahrain, Bangladesh, Brunei, Egypt, Gambia, Indonesia, Iran, Iraq, Jordan, Kuwait, Lebanon, Malaysia, Mauritania, Pakistan, Qatar, Saudi Arabia, Senegal, Syria, Sudan, Tunisia, Turkey, UAE, and Yemen.