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

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.

Bank competition, concentration and EU SME cost of debt

“…We follow Fosu et al (2018), Love and Peria (2014) and Anginer et al (2014) to generate the Lerner index as a proxy of disaggregate level bank market power. The Lerner index is defined as the difference between banking output prices and marginal costs (relative to prices) as follows:…”

Credit information sharing and loan default in developing countries: the moderating effect of banking market concentration and national governance quality

“…In the light of the extant literature (e.g., Beck et al, 2006;Fosu, 2014;Dietrich, 2016, Chen et al, 2018, we measure banking market concentration by using the three-bank concentration ratio defined as the share of assets of the three largest banks, expressed as a percentage of the entire banking assets. The choice of this measure as against other alternative measures (e.g., the Lerner index, Herfindahl-Hirschman Index and five-bank concentration as in Sharma et al (2015) and Fosu et al (2018)) is due to the fact that the sample size changes over the sample period and this could lead to a measurement error if we utilised more than the top three banks (see Beck et al, 2006).…”

Stock price synchronicity and price informativeness: Evidence from a regulatory change in the U.S. banking industry

“…http://mba.tuck.dartmouth.edu/pages/faculty/ken.french/data_library.html#Research6 We exclude several banks based on exclusion criteria applied by the existing literature(Jones, Lee and Yeager, 2013;Fosu et al, 2018). First, we remove banks operating less than three consecutive quarters.…”

“…Finally, considering the comparability of the treated group and control group, BHCs with total consolidated assets more than $2 billion are excluded. Following Jones,Lee and Yeager (2013) andFosu et al (2018), all balance sheet items are presented as end-of-quarter amounts. All quarterly data are winsorized at the 1st and 99th percentiles.…”