Supervisory pressure and risk management systems: empirical evidence from the banking context

The aim of this chapter is to investigate whether risk and risk management disclosure of Italian listed banks increased after the introduction of the single supervisory mechanism (SSM) in November 2014, as well as whether those banks that underwent European Central Bank (ECB) on- site/off-site inspections implemented more risk-based disclosure items than non-supervised banks did in the period of 2014-2016. To reach this aim, a random-effects generalized least square regression model and a fixed-effects regression model are performed. The findings show that, after the introduction of the SSM, there was an overall implementation of risk and risk management disclosure for all Italian listed banks. In addition, the empirical results confirm that those banks that underwent ECB on-site/off-site inspections perceived being under greater pressure to become more aware and structured in their risk management communication. Our findings may be of interest for regulators and accounting standard setters because they provide insights into potential tools that could be used to further enhance risk management systems and improve the corresponding disclosure.