Winners and Losers of the Global Financial Crisis: a Comparative Study of Expert Investors and the General Public

Winners and Losers of the Global Financial Crisis: A Comparative Study of Expert Investors and the General Public

ABSTRACT

In the wake of the recent financial crisis and recession, much attention was drawn to the financial statements of banks and the disclosures made therein. Many pieces of research are critical of the level of disclosures required of banks, but only with hindsight of recent events. Despite the criticisms associated with Basel II, there is little evidence which suggested the potential scale of the problems which could result from a lack of disclosure. Thus, this dissertation aimed to investigate the disclosures made in the financial statements and their readability to experienced and inexperienced users alike. This was achieved by carrying out simple ratio analysis of the figures, which could be calculated by a lay investor, and through the use of a questionnaire, emailed to a small sample of expert professionals who operate in the investment industry to gain their opinion on the matter. Research findings suggested it was possible for members of the general public to identify trends in the figures of the financial statements which hinted at potential problems arising, but not to realise their full potential. This was supported by findings from the questionnaire where experts stated the information in the financial statements alone was not sufficient to fully predict the financial crisis. They felt the figures and trends found in the financial statements must be combined with an understanding of the global economy and the stresses it was under at the time. Furthermore, they believed that solely the increase in disclosures already seen in bank financial statements would not be capable of preventing future crises. Thus, it was suggested to avoid future crises: banks or their regulatory bodies could provide a document which informs investors of the key performance indicators which can be found within the financial statements; bank financial...