Using a sample of European banks, this paper examines the link between disclosure and its economic consequences. We exploit an exogenous cost of capital shock created by the Greek Sovereign Debt Crisis and analyze banks’ disclosure responses to this shock. First, we find that European banks increase the length of their annual reports from 2009 to 2011, in particular the risk management section. Our cross-sectional results show that the increase in length of either the annual report or the risk report is positively associated with the bank-specific cost of capital shock. Second, we find empirical evidence that the change in risk disclosure mitigates the cost of capital shock; whereas the change in the length of the annual report is not significantly associated with subsequent positive market reactions. Finally, our cross-country analysis shows that the market reaction to the change in disclosure is more pronounced for banks domiciled in a strong institutional environment.