Bank opacity and risk-taking: evidence from analysts’ forecasts

Fosu, Samuel, Ntim, Collins G, Coffie, William and Murinde, Victor (2017) Bank opacity and risk-taking: evidence from analysts’ forecasts. Journal of Financial Stability, 33. pp. 81-95. ISSN 1572-3089

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Abstract

We depart from existing literature by invoking analysts’ forecasts to measure banking system opacity and then investigate the impact of such opacity on bank risk-taking, using a large panel of US bank holding companies, over the 1995–2013 period. We uncover three new results. Firstly, we find that opacity increases insolvency risks among banks. Secondly, we establish that the relationship between opacity and bank risk-taking is accentuated by the degree of banking market competition. Thirdly, we show that the bank business model moderates the risk-taking incentives of opaque banks, albeit only marginally. Overall, these findings suggest that the analysts forecast measure of bank opacity is useful for understanding risk-taking by publicly-traded banks, with important implications for bank stability.

Item Type: Article
Keywords: Bank opacity, Analysts' forecasts, Bank stability, Banking market competition, Bank business models
Schools and Departments: University of Sussex Business School > Accounting and Finance
SWORD Depositor: Mx Elements Account
Depositing User: Mx Elements Account
Date Deposited: 11 May 2022 09:51
Last Modified: 11 May 2022 10:00
URI: http://sro.sussex.ac.uk/id/eprint/105823

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