Bank Competition, Loan Portfolio Concentration and Stock Price Crash Risk: The Role of Tone Ambiguity

British Journal of Management, 0[10.1111/1467-8551.12850]

44 Pages Posted: 2 Aug 2024

See all articles by Nikolaos Gkoumas

Nikolaos Gkoumas

Athens University of Economics and Business - Department of Accounting and Finance

George N. Leledakis

Athens University of Economics and Business, School of Business, Department of Accounting and Finance

Emmanouil G. Pyrgiotakis

University of Essex - Essex Business School

Ion Androutsopoulos

Athens University of Economics and Business

Date Written: March 8, 2024

Abstract

We examine the association between loan portfolio concentration, competition, and stock price crash risk in the U.S. banking industry. We find that during economic downturns, banks with poorly diversified loan portfolios that operate in competitive markets are more likely to crash. Importantly, we show that this link is channeled through aggressive earnings management and ambiguous annual reports. Therefore, managerial ambiguity can serve as an early warning signal of information obfuscation, which can eventually lead to stock price crashes. As a quasi-natural experimental, we use the passage of the Economic Growth, Regulatory Relief, and Consumer Protection Act in 2018. This policy lowered the regulatory requirements and oversight for a specific group of large banks. The results of a difference-in-differences analysis support our baseline findings and add to the ongoing debate on the roots of the 2023 banking crisis. Therefore, our findings can be informative to market participants, regulators, and policy makers.

Keywords: stock price crash risk; market competition; loan diversification; textual analysis

JEL Classification: G12, G14, G21, G32

Suggested Citation

Gkoumas, Nikolaos and Leledakis, George N. and Pyrgiotakis, Emmanouil G. and Androutsopoulos, Ion, Bank Competition, Loan Portfolio Concentration and Stock Price Crash Risk: The Role of Tone Ambiguity (March 8, 2024). British Journal of Management, 0[10.1111/1467-8551.12850], Available at SSRN: https://ssrn.com/abstract=4752538 or http://dx.doi.org/10.1111/1467-8551.12850

Nikolaos Gkoumas (Contact Author)

Athens University of Economics and Business - Department of Accounting and Finance ( email )

76 Patission Street
GR-104 34 Athens
Greece

George N. Leledakis

Athens University of Economics and Business, School of Business, Department of Accounting and Finance ( email )

76 Patission Str.
Athens, 104 34
Greece
+30 210 8203 459 (Phone)
+30 210 8228 816 (Fax)

HOME PAGE: http://www.aueb.gr/en/faculty_page/leledakis-georgios

Emmanouil G. Pyrgiotakis

University of Essex - Essex Business School ( email )

Wivenhoe Park
Colchester, CO4 3SQ
United Kingdom

Ion Androutsopoulos

Athens University of Economics and Business ( email )

76 Patission Street
Athens, 104 34
Greece

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