Voluntary Disclosure of Capital Adequacy and Bank Lending

Firms may commit to provide more information than mandated by regulation with an attempt to improve their own performance. A widely-held view is that financial firms are less likely to voluntarily disclose to avoid adverse investment consequences. Using a hand-collected sample relating to voluntary disclosure of banks in the U.S. in 2014, we show that those banks which provide more than the minimum required information on their capital adequacy, have lending growth that is, on average, higher than that of non-disclosers. Furthermore, those banks where there is greater alignment of managerial interests with shareholder's interests are more likely to disclose voluntarily. Overall, our findings suggest that voluntary disclosure can have a causal effect on the growth of bank lending, which is enabled through the cost of capital channel. Prominently, disclosing banks increase their capital.