DISCLOSURE, BANKS CDS SPREADS AND THE EUROPEAN SOVEREIGN CRISIS

We investigate the impact of banks disclosure on the evolution of their CDS spreads during the European sovereign debt crisis. We focus on the CDS spreads changes following the announcements of sovereign credit rating downgrades. The disclosure of information helps investors in building expectations and may participate into the reduction of the information risk premium and of the CDS spreads. We assess the cumulative abnormal CDS spread changes (CASC) around sixteen downgrades from 2011 to 2013. We build two disclosure indexes: one general and one dedicated to sovereign exposure. We show that the bank exposure to sovereign risk has a positive impact on the CASC whilst a sovereign disclosure has a negative impact: information thus reduces risk premiums. However, the global disclosure increases the CASC, since investors may disapprove the disclosure of too much abundant and broad information.