Stress test and regulatory disclosure

In the aftermath of the financial crisis, regulators and policy makers have called for improved corporate transparency, mainly through significant changes to regulations and disclosure requirements. In particular, since the 2007-2009 financial crisis, stress tests have become an integral part of macroprudential regulation in the U.S. and Europe with the goal to strengthen the resilience of the financial system and ensure that financial institutions have sufficient capital. There isn’t an agreement on whether the stress test results should be disclosed: there are positive implications but also negative externalities arising from it. With a focus on the European Economic Area, the aim of this work is to show if the information disclosed in 2014 and 2016 through the Asset Quality Review and the Stress Tests had a significant impact on the stock value and on the balance sheet of the banks taking part to the different disclosure events. Through a fixed-effect econometrical analysis, it will be shown that the significance of balance sheet variables such as Loans over Assets, Return on Equity or Price to Book Value changes considerably for banks who took place to the disclosure events with respect to banks who did not.