Competition and voluntary disclosure: evidence from deregulation in the banking industry
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We use the relaxation of interstate branching restrictions under the Interstate Banking and Branching Efficiency Act (IBBEA) to examine how increases in competition affect incumbents’ voluntary disclosure choices. States implemented the IBBEA over several years and to varying degrees, allowing us to identify the effect of increased competition on the voluntary disclosure decisions of both public and private banks. We find that increases in competition are associated with an increase in press releases. Overall, press releases become more negative in tone as entry barriers decrease. However, disclosures by public banks and by banks issuing equity become incrementally positive in tone when entry barriers decrease. Thus, the increase in disclosure is consistent with a dominant incentive to deter entry via negative information, which is mitigated by an incentive to communicate positive information to investors.
KeywordsVoluntary disclosure Competition Banking
JEL ClassificationM41 G21 D40
This work is supported by the Harry W. Kirchheimer Faculty Research Fund at the University of Chicago Booth School of Business. We are grateful to Stephen Penman (the editor) and an anonymous referee for valuable feedback. We thank Jannis Bischof, Peter Easton, Jack Hughes, Christo Karuna (discussant), Hanna Lee (discussant), Ed Owens, Doug Skinner, Charles Wasley, Jerry Zimmerman, and workshop participants at the University of Rochester, the 2012 FARS Midyear Meeting, and the 2013 Conference on Financial Economics and Accounting for their comments.
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