Uncertainty, bank opacity, and market structure

Abstract

Purpose

The study examines the impact of uncertainty on bank opacity while particularly taking into account the moderating role of market structures.

Design/methodology/approach

Using a sample of Vietnamese banks from 2007 to 2019, the paper measures uncertainty at the disaggregate level of the banking sector through the dispersion of bank shocks and capture bank opacity from the perspective of bank earnings management based on discretionary loan loss provisions. The authors apply both structural and non-structural proxies of bank competition/concentration to better explore the role of market structures. Empirical regressions are conducted using the fixed effect regressions with Driscoll–Kraay standard errors and the two-step system generalized method of moments (GMM) technique, and then verified by the least squares dummy variable corrected (LSDVC) estimator.

Findings

Bank earnings opacity is less severe in periods of higher uncertainty. Further analysis documents that the negative impact of uncertainty on bank earnings opacity is stronger when the level of bank competition increases or when bank market power decreases.

Originality/value

The finding highlighting the conditioning role of market structures is entirely novel in the uncertainty-bank opacity literature. Moreover, in providing additional evidence on the significant impact of uncertainty on bank opacity, while prior related studies explore economic policy uncertainty, the authors utilize micro uncertainty in banking that exhibits enormous superiority.

Citation

Dang, V.D. and Nguyen, H.C. (2023), "Uncertainty, bank opacity, and market structure", International Journal of Managerial Finance, Vol. 19 No. 4, pp. 930-949. https://doi.org/10.1108/IJMF-11-2021-0581