Mandatory Disclosure, Voluntary Disclosure, and Stock Market Liquidity: Evidence from the EU Bank Stress Tests


  • Accepted by Douglas Skinner. We wish to thank Hamid Mehran and Abbie Smith (the conference editors), an anonymous referee, Mary Barth, Phil Berger, Ulf Brüggemann, Eti Einhorn, Miles Gietzmann, Martin Glaum, Luzi Hail, Mirko Heinle, Luc Laeven (discussant), Konrad Lang, Christian Leuz, Martien Lubberink, Scott Richardson, Johannes Voget, Alfred Wagenhofer, Regina Wittenberg-Moerman, and workshop participants at the JAR/NY Fed Conferences in Chicago and New York City, Workshop on Accounting and Economics in Segovia, Annual Meeting of the Accounting Research Committee of the Verein fuer Socialpolitik in Bayreuth, Deutsche Bundesbank, DFG Priority Program Conference in Mannheim, 2013 EAA Annual Congress in Paris, IAAER/AS-VHB Conference in Frankfurt, Goethe University Frankfurt, Frankfurt School of Finance and Management, University of Mannheim, and University of Tübingen for helpful comments on previous versions of the paper. The research project is part of the Priority Program 1578 “Financial Market Imperfections and Macroeconomic Performance” by the German Research Foundation ( Part of the research was carried out while Jannis Bischof was visiting Chicago Booth School of Business and Holger Daske was visiting London Business School and the University of Sydney. Jannis Bischof gratefully acknowledges the financial support from the German Academic Exchange Service (DAAD Postdoc Program) and the J.P. Stiegler Foundation.


We use the EU stress tests and the Eurozone sovereign debt crisis to study the consequences of supervisory disclosure of banks’ sovereign risk exposures. We test the idea that a mandatory one-time disclosure induces an increase in voluntary disclosures about sovereign risk in the following periods and, through the shift in the voluntary disclosure equilibrium, increases the liquidity of banks’ shares. First, we find that the timing and content of different mandatory disclosure events helps explain the levels of stress-test banks’ voluntary disclosures about sovereign risk. Second, although the bid-ask spreads of stress test participants generally increased after the mandatory stress test in 2011, our results suggest that the decrease in market liquidity is entirely attributable to those stress-test participants that did not commit to voluntarily maintaining the disclosures of sovereign risk exposure.