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

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posted on 2023-06-15, 20:38 authored by Samuel FosuSamuel Fosu, Collins G Ntim, William Coffie, Victor Murinde
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.

History

Publication status

  • Published

File Version

  • Accepted version

Journal

Journal of Financial Stability

ISSN

1572-3089

Publisher

Elsevier

Volume

33

Page range

81-95

Department affiliated with

  • Accounting and Finance Publications

Full text available

  • Yes

Peer reviewed?

  • Yes

Legacy Posted Date

2022-05-11

First Open Access (FOA) Date

2022-05-11

First Compliant Deposit (FCD) Date

2022-05-11

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