Competition and opacity in the financial system

Research output: Contribution to journalArticlepeer-review

Abstract

This paper studies the effect of competition on opacity in the financial system. In my model, two financial institutions competing for investors simultaneously make a public disclosure decision when both are exposed to rollover risk. I find that in the face of rollover risk, competition between financial institutions has a nonmonotonic effect on their disclosure decisions. More intense competition can reduce disclosure and make the financial system more opaque, especially when investors’ private information about the financial institutions is sufficiently precise.

Original languageEnglish (US)
Pages (from-to)1895-1913
Number of pages19
JournalManagement Science
Volume67
Issue number3
DOIs
StatePublished - Mar 2021

Bibliographical note

Publisher Copyright:
© 2020 INFORMS

Copyright:
Copyright 2021 Elsevier B.V., All rights reserved.

Keywords

  • Bank opacity
  • Coordination
  • Disclosure policies
  • Financial institutions
  • Higher-order beliefs
  • Interbank competition
  • Rollover risk

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