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

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

Research output: Contribution to journalArticlepeer-review

12 Citations (Scopus)

Abstract

Whilst the ongoing banking regulatory reforms towards a comprehensive Basel III framework emphasise 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
Pages (from-to)38-52
Number of pages15
JournalInternational Review of Financial Analysis
Volume60
DOIs
Publication statusPublished - Nov 2018
Externally publishedYes

Keywords

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

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics

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