The effect of opioid abuse on credit union performance and risk
Abstract
Purpose This study aims to examine the impact of the U.S. opioid crisis on credit union performance and risk. Design/methodology/approach We test how county-level opioid death rate affects local credit union performance and risk. Potential endogeneity issues are addressed using two-stage least squares regression, propensity score matching and entropy balancing techniques. Our findings are checked by various regression specifications and sample constructions. We also conduct a causal mediation analysis to identify the potential channels of our findings. Findings We find that credit unions in counties with higher opioid death rates are associated with lower profitability. This causal association is confirmed with multiple techniques and robust to various checks. Moreover, the opioid crisis reduces credit union profitability by reducing asset growth, loan growth, deposit growth and interest income and by increasing operating expenses and nonperforming loans. Further, the negative effect of opioid abuse is more pronounced for state-chartered, community and industry credit unions. Our findings, along with existing literature, suggest that the opioid crisis negatively affects the performance of financial institutions by increasing their credit risk. Originality/value Our study is the first to examine the impact of the U.S. opioid crisis on credit unions.