This paper shows that financial development which reduces the opacity of banks' current assets can have unwelcome effects by inducing banks to move into opaque and less efficient activities. The reason is that opacity is valued by bank managers since it makes it more difficult to discipline them. Following financial development, bank managers therefore substitute existing assets with assets that are still opaque, even though these have lower profitability.
|Number of pages||5|
|Publication status||Published - 2007|