Journal of Accounting Research Vol. 54 No. 3 2016
Bank Competition: Measurement, Decision‐Making, and Risk‐Taking
Abstract
This paper investigates whether greater competition increases or decreases individual bank and banking system risk. Using a new text‐based measure of competition, and an instrumental variables analysis that exploits exogenous variation in bank deregulation, we provide robust evidence that greater competition increases both individual bank risk and a bank's contribution to system‐wide risk. Specifically, we find that higher competition is associated with lower underwriting standards, less timely loan loss recognition, and a shift toward noninterest revenue. Further, we find that higher competition is associated with higher stand‐alone risk of individual banks, greater sensitivity of a bank's downside equity risk to system‐wide distress, and a greater contribution by individual banks to downside risk of the banking sector.
- DOI
- 10.1111/1475-679x.12117
- Volume
- 54
- Issue
- 3
- Pages
- 777-826
- Language
- en
- Sources
- openalex crossref bibtex:phds-export.bib