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, 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.
The file attached to this record is the author's final peer reviewed version. The Publisher's final version can be found by following the DOI link.
Citation : Fosu, S., Ntim, C.G., Coffie, W. and Murinde, V. (2017) Bank opacity and risk-taking: Evidence from analysts’ forecasts. Journal of Financial Stability, 33, pp.81-95.
ISSN : 1572-3089
Research Institute : Finance and Banking Research Group (FiBRe)
Peer Reviewed : Yes