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Competition and Opacity in the Financial System

Gaoqing Zhang ()
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Gaoqing Zhang: Carlson School of Management, University of Minnesota, Minneapolis, Minnesota 55455

Management Science, 2021, vol. 67, issue 3, 1895-1913

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. This paper was accepted by Suraj Srinivasan, accounting.

Keywords: coordination; interbank competition; disclosure policies; rollover risk; financial institutions; bank opacity; higher-order beliefs (search for similar items in EconPapers)
Date: 2021
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