How does banking market power affect bank opacity? Evidence from analysts' forecasts

Samuel Fosu, Albert Danso, Henry Agyei-Boapeah, Collins G. Ntim, Victor Murinde

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    7 Citations (Scopus)
    57 Downloads (Pure)

    Abstract

    Whilst the ongoing banking regulatory reforms towards a comprehensive Basel III framework emphasise bank disclosure, transparency and a competitive banking market environment, very little is known about the empirical relationship between bank opacity and banking competition. We investigate the impact of competition, as measured by the individual bank’s pricing power in the banking market, on bank opacity using a large sample of US bank holding companies over the 1986-2015 period. We uncover new evidence, on the competition-bank opacity nexus, which suggests that banks with higher market power and operating in less competitive banking markets have lower analysts’ forecast errors and dispersions and may thus be less opaque. This effect is more pronounced for the 2007-09 global financial crisis period. Our evidence is robust to controlling for analysts’ characteristics, bank fixed-effects and endogeneity problems.
    Original languageEnglish
    JournalInternational Review of Financial Analysis
    Early online date30 Aug 2018
    DOIs
    Publication statusE-pub ahead of print - 30 Aug 2018

    Keywords

    • Bank opacity
    • Competition
    • Financial crisis
    • Disclosure and transparency
    • Basel III framework

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