Supplemental Data and the Structure of Thrift Share Prices

This study examines thrifts’ supplemental disclosures with respect to default risk (scheduled items) and interest rate risk (repricing data). It represents an extension of a recent study (Beaver, Eger, Ryan, and Wolfson 1989; hereafter BERW), which also examines the relationship between banks’ share prices and supplemental disclosures with respect to default risk (nonperforming loans) and interest rate risk (maturity data). However, there are differences between the research designs and the findings of the studies. The research design differences between the bank and thrift studies include: (1) the use of per share deflation instead of book value deflation; (2) the use of seemingly unrelated regressions (SUR), as well as a fixed-effects model; and (3) a partitioning of the sample according to availability of supplemental data to assess the impact of nondisclosure on the estimated coefficients. A sample of 165 publicly traded thrifts was used to regress market values on several variables, including supplemental disclosures. The findings differ from those of the bank study in several respects. First, the coefficient on the supplemental disclosure on interest rate risk is significant in the case of the banks but not in the case of thrifts. Second, the coefficient on the default risk variable is smaller for thrifts than for banks. Third, the following three additional findings extend the bank study. (1) Thrifts that do not disclose the default risk variable appear to be valued at a discount relative to disclosing thrifts. (2) The estimated effects of the incremental explanatory power of the default risk variable is robust with respect to two nonnested estimation methods, a fixed effects model, and a seemingly unrelated regression. (3) The finding regarding scheduled items is robust with respect to an alternative specification, which assesses differences in estimated coefficients for “good” loans versus “bad” loans.