Bank Competition and Information Production
We show that competition adversely affects information production in the banking industry. The positive abnormal return associated with the announcement of a bank loan is reduced in US states that deregulate interstate branching, and the effect is present only for informationally opaque firms and for banks that rely more on soft information. Charge-off rates on small business loans are higher in deregulated states, suggesting that competition decreases loan quality because it reduces banks' incentives to invest in information.