Bank Opacity and Risk-Taking: Evidence from Analysts’ Forecasts
Fosu, S., Ntim, C.G., Coffie, W., and Murinde, V. (2017). ‘Bank Opacity and Risk-Taking: Evidence from Analysts’ Forecasts’, Journal of Financial Stability, 33, 81-95.
40 Pages Posted: 6 Jan 2018
Date Written: January 4, 2018
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, 1995-2013. 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.
Keywords: Bank Opacity; Risk-taking; Analysts’ Forecasts; Bank Stability; US Banks; Banking Market Competition; Bank Business Models
JEL Classification: G01; G14; G21; L11
Suggested Citation: Suggested Citation