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Working paper

Information effects of the Basel bank capital and risk pillar 3 disclosures on equity analyst research – an exploratory examination

Markets Sharemarkets Basel bank capital Financial system regulation Sector regulation Financial disclosure Australia
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apo-nid66350.pdf 1.21 MB

An important component of the Basel Committee on Banking Supervision's framework of capital measurement and capital standards is the public disclosure of regulatory information (referred to as “Pillar 3” within the framework). The standard sets minimum requirements for the public disclosure of information on banks’ risk profile, risk management, capital adequacy, capital instruments and remuneration practices so as to contribute to the transparency of financial markets and to enhance market discipline. We find that capital and risk reporting to the market under Pillar 3 of the Basel II and Basel III accords alters the informational advantage of bank equity analysts. After the commencement of Pillar 3 reporting in Australia, equity research analysts seem to have gained access to value relevant information that was hitherto only the preserve of banks and regulators. We also find that forecast accuracy improves. However, market reaction to forecasts diminishes.

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