Does Bank Competition Affect Managers’ Asymmetric Disclosure? Evidence from a Natural Experiment

• In Event: Research with an Impact on Scholarship: Disclosure and IPO's

Abstract

This study exploits the interstate bank branching deregulation as a natural experiment to
investigate the impact of bank competition on managers’ asymmetric disclosure. I expect that as
firms possess greater bargaining power in debt contracting and have more opportunities to obtain
debt financing following the banking deregulation, managers are more likely to withhold bad
news relative to good news. Consistent with my prediction, I find that firms reduce the timeliness
of bad news disclosures, and the effect is more pronounced in states with fewer interstate
branching restrictions than states with more restrictions. The results suggest that bank
competition plays a significant role in affecting managers’ voluntary disclosure decisions.

Author

• Liya Hou, St. Cloud State University