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How does transparency affect bank financial performance?

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  • Akhigbe, Aigbe
  • McNulty, James E.
  • Stevenson, Bradley A.

Abstract

Theoretical studies suggest that increased transparency reduces a firm's cost of capital (Diamond & Verrecchia, 1991). Thus, more transparency should improve financial performance. We examine the relation between firm transparency and bank holding company (BHC) profit efficiency using the number of analysts following a BHC and the standard deviation of analysts' EPS forecasts to measure transparency. Our hypothesis is that more transparent BHCs are better managed, causing a positive relation between transparency and profit efficiency. The empirical results confirm that transparency has a positive effect on profit efficiency.

Suggested Citation

  • Akhigbe, Aigbe & McNulty, James E. & Stevenson, Bradley A., 2013. "How does transparency affect bank financial performance?," International Review of Financial Analysis, Elsevier, vol. 29(C), pages 24-30.
    • Handle: RePEc:eee:finana:v:29:y:2013:i:c:p:24-30
    DOI: 10.1016/j.irfa.2013.01.007
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    More about this item

    Keywords

    Profit efficiency; Transparency; Stochastic frontier analysis;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • D02 - Microeconomics - - General - - - Institutions: Design, Formation, Operations, and Impact

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