The modern era is also considered to be the era of economic bloom whose main propulsion is to maintain the accessibility of capital. Various leading banks mainly execute this procedure all across the world. This can be easily achieved by maintaining transparency and disclosure in investment banking.
Any economic bloom can rapidly take place if there is enough transparency and information about capital allocation. This helps the investors to take better decisions according to the available information. Therefore, transparency and disclosure in investment banking simply mean vivid communication between stakeholders and banks regarding the available capital.
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The Main Objective of Transparency and Disclosure in Investment Banking
The main purpose of transparency and disclosure in investment banking is the enhance the performance of the banks and improve their liabilities. This procedure also helps to increase the value and interest of the different stakeholders. Other than these it also allows the investors to comprehend the challenging situations a bank has to go through.
As the banks disclose their information and are quite transparent about it then the market price fluctuation can be easily decreased. Transparency also boosts the performance of the market stocks. Hence, most investors and companies support this system.
A piece of opaque information will hamper the future growth of any company. As it might not disclose the bad debt of that company. For positive future growth, it is necessary to know about the various investment of the company.
Documents related to Transparency and Disclosure
To maintain transparency and disclosure a bank must disclose its annual reports along with certain statements and pieces of information. Here is a list of documents that are related to banking transparency:
Statement of Income
An income statement of a bank will display its revenue. It also shows the arenas where the bank has a yield profit or faced a loss. An income statement also carries information regarding expenditures as well as taxes.
Cash Flow Statement
Cash is not constant, it always flows in and out of a bank in a continuous cycle. When money is credited to a bank it is commonly known as the inflow of cash. While, if money is debited from the bank then it is termed the outflow of cash.
The inflow and outflow of cash are documented in the statement of income. It also contains details about various investments, loans, stock as well as bond issuances. A cash flow statement allows a bank to maintain its transparency.
A bank might have numerous assets as well as liabilities which are generally documented down in a balance sheet. It is a kind of document that acts as evidence for transparency. The equities of a stakeholder are also documented down in a balance sheet.
There are two kinds of liabilities. One is the short-term liability and the other one is the long-term liability. Both of these liabilities are documented under the balance sheet.
Statement Regarding the Equity of Stockholder
All the data related to a stockholder’s equity is documented in the statement of stockholders' equity. It stores all the data for a particular period. This statement also has data relating to changes in equity.
These changes include dividends, issuance of stocks, and repurchase of shares. Dividends are a type of interest or reward an investor receives for buying numerous shares and stocks.
Comprehensive Income Statement
A comprehensive income statement often holds the records of other income sources. Other income sources include pensions and foreign exchange. Disclosing the data of other sources of income makes transparency stronger.
Case Study on Transparency and Disclosure
In early 2018 Tyson company was fined $2 million. This is because, during a meeting in 2016, shareholders of this company complained that the company’s annual financial report lacked transparency. It was found that Tyson company had hidden certain business tractions with a few companies and was breaking the environmental law which was destroying the animal lives in the Missouri river.
As a punishment, the U.S. Justice Department asked the Tyson company to hire private auditors who will give training and will double-check the accounts.
Cons of Transparency and Disclosure in Investment Banking
Transparency and disclosure of data have many advantages. However, there are a few disadvantages to the transparency and disclosure of data. It has been observed that several competitive pieces of information about the banks get disclosed which is beneficial for the competitors.
This procedure at times discloses the data about their customer which hampers their privacy. Hence, banks try to be more careful while maintaining their transparency. It is also observed that transparency can cause inefficiency within the bank and which leads to poor coordination among the employees.
This hampers the reputation of the bank as the investors start losing their confidence. This also affects the incentives of the managers in a negative way which leads to insufficient decision-making. It also adversely affects the production of private money by the bank.
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