Determinants of Risk Disclosure in Commercial Banks of Sri Lanka

The purpose of the study is to investigate the determinants of risk disclosures in commercial banks in Sri Lanka. The theoretical framework is developed based on agency theory and the creation of a risk disclosure index (RDI) based on International Financial Reporting Standard (IFRS) 7, Basel II: market discipline and prior literature. Data was collected from annual reports of 10 commercial banks and interim financial statement from Colombo Stock Exchange over the period of 2007-2016 total of 92 annual reports were considered for analysis. The findings reveal that implementation of IFRS 7 and Basel II: market discipline standards raised the extent of risk disclosure in market, credit, liquidity and operational risks associated with commercial bank of Sri Lanka. The effect can be attributed to regulatory requirement executed by central bank of Sri Lanka. The study also found that determinants of disclosure vary across types of risk, bank size, the number of risk committees and board size. The existence of an integrated risk management committee has a significant impact on all types of risk disclosures. Further, findings show that there is no significant impact of leverage on risk disclosure of commercial bank in Sri Lanka. These findings will help regulatory agencies in Sri Lanka and elsewhere in monitoring banking institutions by identifying the impact of standards. Both existing and potential clients of banks can use these findings in strategically choosing their preferred bank of interest.