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Opacity, financial analysts, and bank risk: Evidence from US and European publicly traded banks

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  • Shetabi, Mehrafarin

Abstract

This paper provides new evidence on how bank opacity shapes risk-taking through market discipline and internal governance. Using analyst forecast errors and dispersion as forward-looking measures of opacity and a panel of 341 publicly traded U.S. and European banks from 2000 to 2020, we show that opacity significantly undermines bank stability, particularly during periods of overvaluation and heightened uncertainty. Financial analysts play a dual role: while analyst coverage is stabilizing on average, it amplifies the transmission of opacity into risk for highly opaque banks by intensifying market reactions to adverse informational shocks. Dividend policy further conditions these effects, with moderate payouts supporting stability and excessive distributions magnifying opacity-induced risk. These mechanisms are substantially stronger in the market-based U.S. system than in Europe, underscoring the importance of institutional context. Overall, the results identify opacity as a structural driver of bank risk whose effects depend critically on information intermediation and governance.

Suggested Citation

  • Shetabi, Mehrafarin, 2026. "Opacity, financial analysts, and bank risk: Evidence from US and European publicly traded banks," Journal of Financial Stability, Elsevier, vol. 84(C).
    • Handle: RePEc:eee:finsta:v:84:y:2026:i:c:s1572308926000239
    DOI: 10.1016/j.jfs.2026.101521
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    Keywords

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    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms

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