Advertisement

Competition and voluntary disclosure: evidence from deregulation in the banking industry

  • Jeffrey J. Burks
  • Christine Cuny
  • Joseph Gerakos
  • João Granja
Article

Abstract

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.

Keywords

Voluntary disclosure Competition Banking 

JEL Classification

M41 G21 D40 

Notes

Acknowledgements

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.

References

  1. Ahern, K, & Sosyura, D. (2014). Who writes the news? Corporate press releases during merger negotiations. Journal of Finance, 69(1), 241–291.CrossRefGoogle Scholar
  2. Ali, A, Klasa, S, Yeung, E. (2009). The limits of industry concentration measures constructed with Compustat data: implications for finance research. Review of Financial Studies, 22(10), 3839–3871.CrossRefGoogle Scholar
  3. Ali, A, Klasa, S, Yeung, E. (2014). Industry concentration and corporate disclosure policy. Journal of Accounting and Economics, 58(2–3), 240–264.CrossRefGoogle Scholar
  4. Amore, MD, Schneider, C, žaldokas, A. (2013). Credit supply and corporate innovation. Journal of Financial Economics, 109(3), 835–855.CrossRefGoogle Scholar
  5. Bamber, L, & Cheon, Y. (1998). Discretionary management earnings forecast disclosures: antecedents and outcomes. Journal of Accounting Research, 36(2), 167–190.CrossRefGoogle Scholar
  6. Bens, D, Berger, P, Monahan, S. (2011). Discretionary disclosure in financial reporting: an examination comparing internal firm data to externally reported segment data. The Accounting Review, 86(2), 417–449.CrossRefGoogle Scholar
  7. Berger, P. (2011). Challenges and opportunities in disclosure research—a discussion of “the financial repoting enviornment: review of the recent literature”. Journal of Accounting and Economics, 51(1–2), 204–218.CrossRefGoogle Scholar
  8. Berger, P, & Hann, R. (2007). Segment profitability and the proprietary and agency costs of disclosure. The Accounting Review, 82(4), 869–906.CrossRefGoogle Scholar
  9. Bhojraj, S, Blacconiere, W, D’Souza, J. (2004). Voluntary disclosure in a multi-audience setting: a empirical investigation. The Accounting Review, 79(4), 921–947.CrossRefGoogle Scholar
  10. Black, SE, & Strahan, PE. (2002). Entrepreneurship and bank credit availability. The Journal of Finance, 57(6), 2807–2833.CrossRefGoogle Scholar
  11. Botosan, C, & Harris, M. (2000). Motivations for a change in disclosure frequency and its consequences: an examination of voluntary quarterly segment disclosures. Journal of Accounting Research, 38(2), 329–353.CrossRefGoogle Scholar
  12. Botosan, C, & Stanford, M. (2005). Managers’ motives to withhold segment disclosures and the effect of SFAS no. 131 on analysts’ information environment. The Accounting Review, 80(3), 751–771.CrossRefGoogle Scholar
  13. Bozanic, Z, Roulstone, D, Van Buskirk, A. (2015). Management earnings forecasts and forward-looking statements. Working paper, Ohio State University.Google Scholar
  14. Cedergren, M. (2015). Joining the conversation: how quiet is the IPO quiet period? Working paper, University of Pennsylvania.Google Scholar
  15. Cetorelli, N, & Strahan, PE. (2006). Finance as a barrier to entry: bank competition and industry structure in local us markets. The Journal of Finance, 61 (1), 437–461.CrossRefGoogle Scholar
  16. Chava, S, Oettl, A, Subramanian, A, Subramanian, KV. (2013). Banking deregulation and innovation. Journal of Financial Economics, 109(3), 759–774.CrossRefGoogle Scholar
  17. Clarke, R. (1983). Collusion and the incentives for information sharing. The Bell Journal of Economics, 14(2), 383–394.CrossRefGoogle Scholar
  18. Cornaggia, J, Mao, Y, Tian, X, Wolfe, B. (2015). Does banking competition affect innovation? Journal of Financial Economics, 115(1), 189–209.CrossRefGoogle Scholar
  19. Darrough, M. (1993). Disclosure policy and competition: Cournot vs Bertrand. The Accounting Review, 68(3), 534–561.Google Scholar
  20. Darrough, M, & Stoughton, N. (1990). Financial disclosure in an entry game. Journal of Accounting and Economics, 12(1–3), 219–243.CrossRefGoogle Scholar
  21. Dick, A. (2006). Nationwide branching and its impact on market structure, quality, and bank performance. Journal of Business, 79(2), 567–592.CrossRefGoogle Scholar
  22. Favara, G, & Imbs, J. (2015). Credit supply and the price of housing. The American Economic Review, 105(3), 958–992.CrossRefGoogle Scholar
  23. Gal-Or, E. (1985). Information sharing in oligopoly. Econometrica, 53(2), 329–343.CrossRefGoogle Scholar
  24. Goolsbee, A, & Syverson, C. (2008). How do incumbents respond to the threat of entry? Evidence from the major airlines. Quarterly Journal of Economics, 123(4), 1611–1633.CrossRefGoogle Scholar
  25. Grossman, S. (1981). The informational role of warranties and private disclosures about product quality. Journal of Law and Economics, 24(3), 461–483.CrossRefGoogle Scholar
  26. Guo, RJ, Lev, B, Zhou, N. (2004). Competitive costs of disclosure by biotech IPOs. Journal of Accounting Research, 42(2), 319–355.CrossRefGoogle Scholar
  27. Harris, M. (1998). The association between competition and managers’ business segment reporting decisions. Journal of Accounting Research, 36(1), 111–128.CrossRefGoogle Scholar
  28. Huang, Y, Jennings, R, Yu, Y. (2016). Product market competition and managerial disclosure of earnings forecasts: evidence from import tariff rate reductions. The Accounting Review, forthcoming.Google Scholar
  29. Jayaratne, J, & Strahan, PE. (1996). The finance-growth nexus: evidence from bank branch deregulation. The Quarterly Journal of Economics, 111(3), 639–670.CrossRefGoogle Scholar
  30. Johnson, C, & Rice, T. (2008). Assessing a decade of interstate bank branching. Washington and Lee Law Review, 65(1), 73–127.Google Scholar
  31. Kerr, WR, & Nanda, R. (2009). Democratizing entry: banking deregulations, financing constraints, and entrepreneurship. Journal of Financial Economics, 94(1), 124–149.CrossRefGoogle Scholar
  32. Kothari, S, Li, X, Short, J. (2009). The effect of disclosures by management, analysts, and business press on cost of capital, return volatility, and analyst forecasts: a study using content analysis. The Accounting Review, 84(5), 1639–1670.CrossRefGoogle Scholar
  33. Kroszner, RS, & Strahan, PE. (1999). What drives deregulation? Economics and politics of the relaxation of bank branching restrictions. The Quarterly Journal of Economics, 114(4), 1437–1467.CrossRefGoogle Scholar
  34. Li, X. (2010). The impact of product market competition on the quantity and quality of voluntary disclosures. Review of Accounting Studies, 15(3), 663–711.CrossRefGoogle Scholar
  35. Loughran, T, & McDonald, B. (2011). When is a liability not a liability? Textual analysis, dictionaries, and 10-Ks. Journal of Finance, 66(1), 35–65.CrossRefGoogle Scholar
  36. Matsumoto, D, Pronk, M, Roelofsen, E. (2011). What makes conference calls useful? The information content of managers’ presentations and analysts’ discusssion sections. The Accounting Review, 86(4), 1383–1414.CrossRefGoogle Scholar
  37. Milgrom, P. (1981). Good news and bad news: representation theorems and applications. The Bell Journal of Economics, 12(2), 380–391.CrossRefGoogle Scholar
  38. Raith, M. (2003). Competition, risk, and managerial incentives. American Economic Review, 93(4), 1425–1436.CrossRefGoogle Scholar
  39. Rice, T, & Strahan, P. (2010). Does credit competition affect small-firm finance? Journal of Finance, 65(3), 861–889.CrossRefGoogle Scholar
  40. Rogers, J, Van Buskirk, A, Zechman, S. (2011). Disclosure tone and shareholder litigation. The Accounting Review, 86(6), 2155–2183.CrossRefGoogle Scholar
  41. Sutton, J. (1991). Sunk costs and market structure: price competition, advertising and the evolution of concentration. Cambridge: The MIT Press.Google Scholar
  42. Verrecchia, R, & Weber, J. (2006). Redacted disclosure. Journal of Accounting Research, 44(6), 791–814.CrossRefGoogle Scholar
  43. Wagenhofer, A. (1990). Voluntary disclosure with a strategic opponent. Journal of Accounting and Economics, 12(4), 341–363.CrossRefGoogle Scholar
  44. Wooldridge, J. (2010). Econometric analysis of cross section and panel data, 2nd Edn. Cambridge: The MIT Press.Google Scholar

Copyright information

© Springer Science+Business Media, LLC, part of Springer Nature 2018

Authors and Affiliations

  1. 1.Mendoza College of BusinessUniversity of Notre DameNotre DameUSA
  2. 2.Stern School of BusinessNew York UniversityNew YorkUSA
  3. 3.Tuck School of BusinessDartmouth CollegeHanoverUSA
  4. 4.Booth School of BusinessUniversity of ChicagoChicagoUSA

Personalised recommendations