Bank Opacity and Risk-Taking: The Moderating Role of Competition

Abstract

Purpose: This study examines the influence of bank opacity on banks' risk-taking. It also investigates whether bank competition can affect the strength of the relationship between bank opacity and risk-taking.Design/Methodology/Approach: Using annual data obtained from 9 listed Egyptian banks over the 2010 -2019 period (10 years), the study assessed risk-taking using Z-score, bank opacity utilizing the ratio of Available-For-Sale (AFS) securities to Total Assets (TA), and competition is measured by Lerner Index. The Random Effect Generalized Least Square (RE GLS) model is utilized for empirical analysis.Findings: Results show that bank opacity has a negative insignificant effect on the financial stability of banks. Competition also has a negative insignificant effect on banks' stability. However, bank competition positively and significantly moderates the relationship between bank opacity and risk-taking. Originality/Value:The study contributes to the banking literature by offering evidence on opacity-related issues after the Global Financial Crisis (GFC) and the January 25th and June 30th uprisings in Egypt.