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

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

Abstract

Whilst the ongoing banking regulatory reforms towards a comprehensive Basel III framework emphasise bank transparency, disclosure 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.

Citation

Fosu, S., Danso, A., Agyei-Boapeah, H., Ntim, C. G., & Murinde, V. (in press). How does banking market power affect bank opacity? Evidence from analysts' forecasts. International Review of Financial Analysis, 60, 38-52. https://doi.org/10.1016/j.irfa.2018.08.015

• Journal Article Type: Article
• Acceptance Date: Aug 30, 2018
• Online Publication Date: Aug 30, 2018
• Deposit Date: Sep 6, 2018
• Publicly Available Date: Sep 6, 2018
• Journal: International Review of Financial Analysis
• Print ISSN: 1057-5219
• Electronic ISSN: 1873-8079
• Publisher: Elsevier
• Peer Reviewed: Peer Reviewed
• Volume: 60
• Pages: 38-52
• DOI: https://doi.org/10.1016/j.irfa.2018.08.015
• Keywords: Bank opacity, Competition, Financial crisis, Disclosure and transparency, Basel III framework
• Publisher URL: https://doi.org/10.1016/j.irfa.2018.08.015