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

Bank opacity and risk-taking: evidence from analysts’ forecasts
Bank opacity and risk-taking: evidence from analysts’ forecasts
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, 1995-2013. 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.
Bank opacity, risk-taking, analysts’ forecasts, bank stability, US banks, banking market competition, bank business models
1572-3089
81-95
Fosu, Samuel
20135acd-447a-44ab-b5c7-949477e89121
Ntim, Collins
1f344edc-8005-4e96-8972-d56c4dade46b
Coffie, William
39f85cc2-21ee-4f27-a4e5-b11916f2f47b
Murinde, Victor
7a7f1f3a-def6-42ea-b135-133cf11a41f1
Fosu, Samuel
20135acd-447a-44ab-b5c7-949477e89121
Ntim, Collins
1f344edc-8005-4e96-8972-d56c4dade46b
Coffie, William
39f85cc2-21ee-4f27-a4e5-b11916f2f47b
Murinde, Victor
7a7f1f3a-def6-42ea-b135-133cf11a41f1

Fosu, Samuel, Ntim, Collins, Coffie, William and Murinde, Victor (2017) Bank opacity and risk-taking: evidence from analysts’ forecasts. Journal of Financial Stability, 33, 81-95. (doi:10.1016/j.jfs.2017.10.009).

Record type: Article

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, 1995-2013. 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.

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Accepted/In Press date: 26 October 2017
e-pub ahead of print date: 1 November 2017
Published date: December 2017
Keywords: Bank opacity, risk-taking, analysts’ forecasts, bank stability, US banks, banking market competition, bank business models

Identifiers

Local EPrints ID: 415201
URI: https://eprints.soton.ac.uk/id/eprint/415201
ISSN: 1572-3089
PURE UUID: 4244720c-a281-4528-97f3-387ad019c4d6
ORCID for Collins Ntim: ORCID iD orcid.org/0000-0002-1042-4056

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Date deposited: 02 Nov 2017 17:30
Last modified: 10 Sep 2019 04:36

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Contributors

Author: Samuel Fosu
Author: Collins Ntim ORCID iD
Author: William Coffie
Author: Victor Murinde

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