Bank Opacity and Information Asymmetry around Quarterly Earnings Announcements
Posted: 30 Mar 2013 Last revised: 28 Oct 2014
Date Written: October 4, 2013
The goal of achieving transparency has become more challenging in recent years as banks’ activities have become increasingly more complex and dynamic, making it harder for outsiders to comprehend the full extent of banks’ exposures. In this study, we examine various on- and off-balance sheet activities that are thought to be responsible for increased bank opacity, where the latter is proxy by the bid-ask spread and analysts’ surprise dispersion. Using a sample of 275 U.S. commercial banks listed on the NASDAQ/NYSE/AMEX from Q4-1999 to Q2-2012, our findings support the argument that off-balance sheet trading activities, in particular foreign exchange rate and equity derivatives, are a significant source of bank opacity. This is followed by securitization (of family residential loans), troubled loans (FDIC Texas ratio), and secured loans.
Keywords: bank opacity, commercial banks, information asymmetry, off-balance sheet activities, securitization, transparency
JEL Classification: G21, G14
Suggested Citation: Suggested Citation