Competition and Voluntary Disclosure: Evidence from Deregulation in the Banking Industry
Jeffrey J. Burks
University of Notre Dame
New York University (NYU) - Leonard N. Stern School of Business
University of Chicago - Booth School of Business
Massachusetts Institute of Technology (MIT) - Sloan School of Management
April 3, 2015
Chicago Booth Research Paper No. 12-29
We use the relaxation of interstate branching restrictions under the Interstate Banking and Branching Efficiency Act (IBBEA) to examine how increases in competition affect incumbents' voluntary disclosure choices. States implemented the IBBEA over several years and to varying degrees, allowing us to identify the effect of increased competition on the voluntary disclosure decisions of both public and private banks. We find that increases in competition are associated with increases in the level of voluntary disclosure. Specifically, we find an overall increase in press releases and, in particular, an increase in press releases containing forward-looking, earnings-related, and capital structure-related disclosures. We further provide evidence that banks trade-off incentives to appeal to the capital markets with the incentive to deter potential competitors. Increases in voluntary disclosure are higher in local markets that have low levels of concentration prior to deregulation and are correlated with incentives to be acquired. The tone of press releases becomes less positive and more negative after entry barriers are lowered. The tone effects are stronger for private banks that likely use press releases to communicate with competitors rather than investors, which is consistent with incumbents increasing the disclosure of bad news to deter new entry.
Number of Pages in PDF File: 49
Date posted: August 16, 2012 ; Last revised: April 4, 2015
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