The impact of opacity on bank valuation during the global financial crisis: A channel analysis
Document Type
Article
Abstract
Prior literature suggests that opacity in the banking industry is mainly caused by a lack of informativeness in the assessment of the quality of bank assets. Examining a sample of bank holding companies in the United States, we find that there is a negative relationship between opacity and bank valuation during the 2007–2009 global financial crisis. We further attempt to identify two potential channels through which opacity negatively affects bank valuation during the financial crisis: a cash flow channel and an expected return channel. We show that one channel flows from bank profitability, measured by return on equity and return on assets, confirming a cash flow channel, whereas an expected return channel, proxied by the implied cost of capital, only works for small banks. Overall, this study sheds light on the relationship between in-transparency and bank value discount during a global recession.
Publication Title
International Review of Financial Analysis
Publication Date
5-2023
Volume
87
First Page
102580
ISSN
1873-8079
DOI
10.1016/j.irfa.2023.102580
Keywords
financial crisis, bank valuation, opacity
Repository Citation
Zheng, Yi and Wu, Da, "The impact of opacity on bank valuation during the global financial crisis: A channel analysis" (2023). School of Management. 1.
https://commons.clarku.edu/faculty_school_of_management/1