DO ACCOUNTING DISCLOSURES OF FEE INCOME AFFECT COMMERCIAL BANK SHARE PRICES?

Abstract

Whether or not information relating to (i) non-interest incomes in any form and information relating to (ii) total income of commercial banks are relevant for share price changes is a topic worthy of another study. The enormous importance of such a finding is not disputable in the context of how share prices responded much faster and with larger magnitudes when bank-relevant accounting information is released. This study is done with data from one developed economy, Australia and one developing economy, Malaysia. The impact of news of unexpected changes in total incomes of commercial banks is found to be positive and significant for bank share prices at the time of such information disclosures. Also, news of non-interest income changes – we study both fee income and Islamic finance based non-interest income – there appears to be no significant price changes. The results are consistent with the accounting theory that the market only impounds information on unexpected changes in total incomes not changes in sub-categories of incomes in financial statements. These findings are new for commercial banks.