Bank Competition and Information Production

37 Pages Posted: 16 Oct 2019

See all articles by Filippo De Marco

Filippo De Marco

Bocconi University - Department of Finance; Bocconi University - IGIER - Innocenzo Gasparini Institute for Economic Research

Silvio Petriconi

Bocconi University; IGIER

Date Written: October 7, 2019

Abstract

We show that competition adversely affects information production in the banking industry. In particular, we observe that the positive abnormal return associated with the announcement of a bank loan is reduced in US states that deregulate interstate branching. The negative effect of competition on information production is present only for informationally opaque firms (i.e., firms with few tangible assets and bank-dependent borrowers) and for banks that rely more on "soft" information (i.e., small banks). Moreover, we find that charge-off rates on small business loans are higher in deregulated states. Our results suggest that competition decreases loan quality because it reduces banks' incentives to invest in information.

Keywords: asymmetric information, competition, bank deregulation,syndicated loans, stock returns

JEL Classification: G21, G28

Suggested Citation

De Marco, Filippo and Petriconi, Silvio, Bank Competition and Information Production (October 7, 2019). Available at SSRN: https://ssrn.com/abstract=3465610 or http://dx.doi.org/10.2139/ssrn.3465610

Filippo De Marco (Contact Author)

Bocconi University - Department of Finance ( email )

Department of Finance
Via Roentgen 1
Milano, MI 20136
Italy

Bocconi University - IGIER - Innocenzo Gasparini Institute for Economic Research ( email )

Via Roentgen 1
Milan, 20136
Italy

Silvio Petriconi

Bocconi University ( email )

Via Sarfatti, 25
Milan, MI 20136
Italy

HOME PAGE: http://silviopetriconi.github.io

IGIER ( email )

Via Roentgen 1
Milan, 20136
Italy

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