Home » Publications » Visnyk of the National Bank

Communicative Efficiency Ukraine’sBanking System: Evidence From Independent Auditor Reports

Communicative Efficiency Ukraine’s Banking System: Evidence From Independent Auditor Reports

Oleksandr Sukhomlyn, Kyiv School of Economics, GR Capital

Visnyk of the National Bank of Ukraine, 2018, No. 245, pp. 30-44



This study, based on the quantitative content analysis, examines communicative efficiency in the Ukrainian banking system, i.e. shows how the tone and the readability of independent auditor reports are associated with a bank performance in the next financial year. The study applies a fixed-effects estimator within the regression to an unbalanced panel dataset of Ukrainian banks. The tone of report variable is constructed with the help of Loughran and McDonald’s Financial Sentiment Word Lists, while readability is estimated using the FOG and Flesch-Kincaid indices. Based on estimations of 2012-2016, the readability of audit reports is found to have no relationship with a bank’s profitability in the next year. However, a more negative tone of auditor report is associated with an increase in bank’s ROA and ROE in the subsequent period. This paper concludes with policy implications and remarks on the practical application and execution of the findings.

JEL Codes: C33, C54, D82, E58, G21

Keywords: quantitative content analysis, information asymmetry, independent auditor report, tone, readability

Full text

Citation: Sukhomlyn O. (2018). Communicative Efficiency in Ukraine’s Banking System: Evidence From Independent Auditor Reports. Visnyk of the National Bank of Ukraine, No. 245, pp. 30-44.

Citation Format:

• Aghion Ph., Bacchetta Ph., Ranciere R., Rogoff K. (2009). Exchange Rate Volatility and Productivity Growth: The Role of Financial Development. NBER Working Paper, No. 12117.
Available at: http://www.nber.org/papers/w12117

• Adusei M. (2015). Bank Profitability: Insights From the Rural Banking Industry in Ghana. Cogent Economics & Finance, Vol. 3, No. 1: 1078270.

• Antweiler W., Frank M. (2004). Is All That Talk Just Noise? The Information Content of Internet Stock Message Boards. Journal of Finance, Vol. 59, No. 3, pp. 1259-1294.

• Arellano M., Bond S. (1991). Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations. TheRreview of Economic Studies, Vol. 58, No. 2, pp. 277-297.

• Asare S. K., Wright A. M. (2012). Investors', Auditors', and Lenders' Understanding of the Message Conveyed by the Standard Audit Report on the Financial Statements. Accounting Horizons, Vol. 26, No. 2, pp. 193-217.

• Bloomfield R. (2008). Discussion of "Annual Report Readability, Current Earnings, and Earnings Persistence". Journal of Accounting and Economics, Vol. 45, No. 2-3, pp. 248-252.

• Bourke P. (1989). Concentration and Other Determinants of Bank Profitability in Europe, North America and Australia. Journal of Banking & Finance, Vol. 13, No. 1, pp. 65-79.

• Church B. K., Shawn M. D, McCracken S. A. (2008). The Auditor's Reporting Model: A Literature Overview and Research Synthesis. Accounting Horizons, Vol. 22, No. 1, pp. 69-90.

• Coram P. J., Mock T.J, Turner J. L, Gray G. L. (2011). The Communicative Value of the Auditor's Report. Australian Accounting Review, Vol. 21, No. 3, pp. 235-252.

• Doogar R., Rowe S. P, Sivadasan P. (2015). Asleep at the Wheel (Again)? Bank Audits During the Lead-Up to the Financial Crisis. Contemporary Accounting Research, Vol. 32, No. 1, pp. 358-391.

• Eichengreen B., Gibson H. (2001). Greek Banking at the Dawn of the New Millennium. CEPR Discussion Paper, No. 2791.

• Fakhfakh M. (2015). The readability of international illustration of auditor's report: An advanced reflection on the compromise between normative principles and linguistic requirements. Journal of Economics, Finance and Administrative Science, Vol. 20, No. 38, pp. 21-29.

• Flamini V., McDonald C., Schumacher L. (2009). The Determinants of Commercial Bank Profitability in Sub-Saharan Africa. Working Paper, No. 9-15, International Monetary Fund.

• Gray G. L., Turner J. L., Coram P. J., Mock T. J. (2011). Perceptions and misperceptions regarding the unqualified auditor's report by financial statement preparers, users, and auditors. Accounting Horizons, Vol. 25, No. 4, pp. 659-684.

• Harris H. (2001). Content Analysis of Secondary Data: A Study of Courage in Managerial Decision Making. Journal of Business Ethics, Vol. 34, No. 3-4, pp. 191-208.

• Heffernan S., Fu M. (2008). The Determinants of Bank Performance in China. 21st Australasian Finance and Banking Conference 2008.

• Henry E. (2008). Are Investors Influenced by how Earnings Press Releases are Written? Journal of Business Communication, Vol. 45, No. 4, pp. 363-407.

• Hermanson D.R., Duncan P., Carcello J. V. (1991). Does the new audit report improve communication with investors? Ohio CPA Journal, (May/June): pp. 32-37.

• Insch G. S., Moore J. E., Murphy L. D. (1997). Content Analysis in Leadership Research: Examples, Procedures, and Suggestions for Future Use. The Leadership Quarterly, Vol. 8, No. 1, pp. 1-25.

• Kosak M., Cok M. (2008). Ownership Structure and Profitability of the Banking Sector: The Evidence from the SEE-6 Region. Proceedings of Rijeka Faculty of Economics, Journal of Economics and Business, Vol. 26, No. 1, 2008, pp. 93-122.

• Kosmidou K. (2008). The Determinants of Banks' Profits in Greece During the Period of EU Financial Integration. Managerial Finance, Vol. 34, No. 3, pp. 146-159.

• Li F. (2008). Annual Report Readability, Current Earnings, and Earnings Persistence. Journal of Accounting and Economics, Vol. 45, No. 2-3, pp. 221-247.

• Li F. (2010). The Information Content of Forward-Looking Statements in Corporate Filings-A Naive Bayesian Machine Learning Approach. Journal of Accounting Research, Vol. 48, No. 5, pp. 1049-1102. https://doi.org/10.1111/j.1475-679X.2010.00382.x