Mandatory Disclosure Tone and Bank Risk-taking : Evidence from Europe

We examine the relationship between the tone of mandatory disclosures and bank risk insolvency to determine what this qualitative information may reveal about bank stability. By using text analysis and the context-specific text dictionaries of Loughran and McDonald, we find that qualitative information collected in a negative tone helps explain bank risk insolvency. This finding suggests that qualitative information through the mandatory disclosure tone could be used to detect the communication among banks, the market and supervisors