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Review of Accounting Studies

Erschienen in:

11.07.2018

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

verfasst von: Jeffrey J. Burks, Christine Cuny, Joseph Gerakos, João Granja

Erschienen in: Review of Accounting Studies | Ausgabe 4/2018

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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.

Vorheriger Artikel Employee turnover likelihood and earnings management: evidence from the inevitable disclosure doctrine

Nächster Artikel Measuring the market response to going concern modifications: the importance of disclosure timing

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For example, Darrough and Stoughton (1990), Wagenhofer (1990), and Darrough (1993).

Although public banks likely face greater capital market pressures than private banks, private banks do tend to be heavy users of public credit markets through repos and wholesale deposits. Thus, capital market incentives to disclose are also relatively strong for private banks, in comparison to other types of private firms.

See, for example, Goolsbee and Syverson (2008).

De novo branching is the creation of a new branch as opposed to the acquisition of an existing branch.

The only two states that opted out of the provision were Texas and Montana. Both states opted in several years later.

We find little press release activity for banks below this cutoff.

Our panel of bank-years is unbalanced due to banks exiting the sample after mergers and acquisitions or failure. In Section 6, we show that our results are robust to restricting the sample to banks in existence throughout the sample period.

As of 2012, the cost of using PR Newswire to distribute a press release starts at approximately $180 for citywide distribution of a 400 word press release, $740 for national distribution, and $8,000 for worldwide distribution. Business Wire’s pricing grid is similar starting at $295 for citywide, $725 for national, and $8,725 for global distribution. We capture all press releases made by sample banks for citywide, national, or global distribution.

LexisNexis began coverage of PR Newswire in January 1980 and Business Wire in September 1983.

This requirement is based on the structure of LexisNexis data fields.

To identify changes in a bank’s name, we use the history provided on the official website for Federal Reserve bank data (http://www.ffiec.gov/nicpubweb/nicweb/SearchForm.aspx). We focus on cosmetic name changes rather than changes caused by acquisitions. We do not collect press releases after a bank was acquired, because post-acquisition control over disclosure policy likely shifts to the parent.

RavenPack provides real time analysis of press releases and other types of textual data to financial institutions (http://www.ravenpack.com/index.html).

Footer information commonly includes the company’s contact information. For less than one percent of the press releases, the headline or footer is formatted in a nonstandard fashion and thus cannot be identified with our textual analysis program. In these cases we conduct the search on the entire text of the press release, including the header and footer text.

For a description of Diction, see http://www.dictionsoftware.com/. For an application, see Rogers et al. (2011).

A related concern is that IBBEA might also have prompted banks to go public in order to finance their expansion strategies and, as a result, banks increased their voluntary disclosures in preparation for the public offering. This explanation is unlikely because only two banks in our sample switch their ownership status.

We use the SDC Thomson database to identify acquisitions.

Data for commercial banks are taken from the Bank Regulatory database available on WRDS. For commercial banks, the ratio is computed as the ratio of the sum of net income over the past four quarters (RIAD4340) to total assets (RCFD2170). For savings banks and savings institutions, data are taken from the Thrift Financial Report data provided by SNL Financial. For savings banks and savings institutions, the ratio is computed as the ratio of the sum of Net Income attributable to Savings Association (SO91) over the past four quarters to Total Assets (SC60).

In some years, banks in our sample issued zero press releases. We use ordinary least squares because introducing fixed-effects in a Tobit model introduces an incidental parameter problem (Wooldridge 2010).

For banks that are SEC registrants, we use the number of voluntary 8-K filings as an alternative measure of voluntary disclosure and find similar results, but with slightly weaker statistical significance.

Our press release measure is skewed. To address this point, we reestimated our base specifications using the natural logarithm of the press release measures as the dependent variable. For bank-years with zero press releases, we add one before taking the natural logarithm. For this specification, the estimated coefficient on the variable of interest is statistically significant using one-sided tests, and the treatment effects are similar in economic magnitude to those presented in the tables. This specification, however, is problematic due to the artificial nature of adding one before taking the natural logarithm of the dependent and independent variables. To further address this point, we Winsorize the distribution of press releases to the 99th percentile to remove any effects of outliers. Once again, the results are the same as those presented in our main analysis.

In untabulated analysis, we redefine the acquisition variable so that it is equal to one only for acquisitions in which the percentage change in deposits is in the top quartile. We find that the economic magnitude of the coefficient is substantially larger (3.5).

The county is our unit of analysis in this regression because the county level reflects the most direct competition faced by a given bank and reflects the geographic market that the bank is most interested in protecting.

In unreported results, we also find that the tone results are unchanged when we condition on these additional variables. For brevity, we do not include these results in the paper.

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Titel: Competition and voluntary disclosure: evidence from deregulation in the banking industry
verfasst von: Jeffrey J. Burks
Christine Cuny
Joseph Gerakos
João Granja
Publikationsdatum: 11.07.2018
Verlag: Springer US
Erschienen in: Review of Accounting Studies / Ausgabe 4/2018
Print ISSN: 1380-6653
Elektronische ISSN: 1573-7136
DOI: https://doi.org/10.1007/s11142-018-9463-1

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