Entry Threats and Voluntary Disclosure

Abstract:     
We exploit the relaxation of interstate bank branching restrictions in the 1990s to examine how the threat of new entrants affects incumbents' voluntary disclosure choices. The Interstate Banking and Branching Efficiency Act relaxed interstate banking and branching restrictions, thereby increasing competitive entry threats. The Act was implemented over several years and to varying degrees by different states, allowing us to identify the effect of changes in potential entry on the voluntary disclosure decisions of both public and private banks. Controlling for changes in actual entry and changes in state-level economies, we find that increases in the threat of new entrants are associated with increases in the level of voluntary disclosure as measured by press releases. Our results are consistent with theoretical predictions that higher levels of entry threats lead to higher levels of disclosure.

Number of Pages in PDF File: 35

working papers series