The Interaction of Mandatory and Voluntary Disclosures

, University of 黑料传送门 Booth School of Business

, Rutgers Business school 

One of the aims of the Dodd-Frank Wall Street Reform and Customer Protection Act of 2010 (DFA) is to reduce the systemic risk of 鈥渟ystemically important financial institutions鈥� (SIFIs). DFA defines SIFIs as banks with total assets over and above $50bln. One of the channels through which the regulation is affecting SIFIs and banks just below the $50bln threshold is through mandatory stress tests, additional regulatory oversight and increased mandatory disclosure. There is mixed evidence in analytical research on the role of mandatory disclosure and banks鈥� behaviour. In this project we examine whether the requirement for banks鈥� to provide mandatory disclosures affect their voluntary disclosures as well. In particular, we focus on banks that are directly affected by the regulation (SIFIs) as well as mid-sized banks that fall below the cut-off threshold (large and midsize banks). Theoretical predictions in this setting potentially go into two opposing directions: since the DFA increases disclosure requirements, banks might like to signal their type by providing additional voluntary disclosures. However, commitment to disclosure might be costly due to potential endogenous costs of disclosures. Thus the question of whether SIFIs and mid-size banks increase or decrease voluntary disclosure is an empirical question that warrants investigation.