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Bank Capital Structure and Procyclicality of Leverage

by Ciydem Catak (Author)
©2018 Thesis 120 Pages

Summary

This book investigates the determinants of bank capital structure and procyclical behavior of leverage. A panel data analysis is developed to find out the relation between different types of leverage ratios and asset growth of banks. Furthermore, possible impacts of bank specific and macroeconomic variables on the bank capital structure are discussed. The book concludes that the leverage of Turkish banks is procyclical, which is the outcome of a positive relation between asset growth and leverage. The procyclical leverage could contribute to higher instability in the financial sector and the overall economy. Therefore, further regulations are assumed to be necessary. Size, profit, number of banks, inflation, exchange rate, and gross domestic product are the factors that affect Turkish banks’ capital structure.

Table Of Contents

  • Cover
  • Title
  • Copyright
  • About the author(s)/editor(s)
  • About the book
  • This eBook can be cited
  • Table of Contents
  • List of Tables
  • List of Figures
  • Abbreviations
  • 1 Introduction
  • 2 Procyclicality
  • 2.1 Definition of procyclicality
  • 2.2 Causes of procyclicality
  • 2.2.1 Deviations from the efficient market hypothesis
  • 2.2.2 Credit rating agencies
  • 2.2.3 Economic policy
  • 2.2.4 Basel II and procyclicality
  • 2.2.5 Fair value accounting
  • 2.2.6 Leverage
  • 3 The determinants of bank capital structure
  • 3.1 Definition of capital structure
  • 3.2 Theories of capital structure
  • 3.2.1 Modigliani and Miller Irrelevance Theory
  • 3.2.2 Trade-Off Theory
  • 3.2.3 Pecking Order Theory
  • 3.2.4 Agency Theory
  • 3.3 Empirical research on the determination of capital structure
  • 3.3.1 Determinants of firms capital structure
  • 3.3.2 Determinants of banks capital structure
  • 4 Research design
  • 4.1 Procyclicality of leverage
  • 4.1.1 Data and sample selection
  • 4.1.2 The variables
  • 4.1.2.1 The dependent variables
  • 4.1.2.2 The explanatory variable
  • 4.1.2.3 The control variables
  • 4.1.3 Descriptive statistics
  • 4.1.4 Empirical research model
  • 4.1.4.1 First model
  • 4.1.4.2 Second model
  • 4.1.4.3 Third model
  • 4.1.4.4 Fourth and fifth models
  • 4.1.4.5 Sixth model
  • 4.1.4.6 Seventh model
  • 4.1.4.7 Eighth model
  • 4.1.5 Data analysis and results
  • 4.2 Determinants of leverage
  • 4.2.1 Data and sample selection
  • 4.2.2 The variables
  • 4.2.2.1 Size
  • 4.2.2.2 Collateral
  • 4.2.2.3 Profit
  • 4.2.2.4 Inflation
  • 4.2.2.5 Gross domestic product
  • 4.2.2.6 Money supply
  • 4.2.2.7 Exchange rate
  • 4.2.2.8 Number of banks
  • 4.2.3 Descriptive statistics
  • 4.2.4 Empirical research model
  • 4.2.5 Data analysis and results
  • 5 Conclusion
  • 6 References

| 11 →

List of Tables

Table 2.1: Description of Capital

Table 2.2: Risk Weight of Assets

Table 2.3: Features of Each Level in the Fair Value Hierarchy

Table 2.4: A List of Empirical Studies in Literature

Table 4.1: The Number of Banks at the End of the Last Month of the Year

Table 4.2: Variables, Abbreviations and Definitions

Table 4.3: Leverage Ratios

Table 4.4: Descriptive Statistics of Leverage Ratios

Table 4.5: Descriptive Statistics of Explanatory Variables and Control Variables

Table 4.6: Fixed Effect and Random Effect Models

Table 4.7: The Relationship between Leverage Growth and Asset Growth

Table 4.8: The Relationship between Leverage and Asset Growth Considering Banking Groups

Table 4.9: Variable, Abbreviations and Definitions

Table 4.10: Descriptive Statistics of Variables

Table 4.11: Correlation Matrix

Table 4.12: Predicted Effects of Explanatory Variables on Leverage

Table 4.13: The Relationship between Leverage and Bank-Specific and Macroeconomic Variables

| 13 →

List of Figures

Figure 2.1: Proposed changes to elements of the capital ratio under Basel II

Figure 2.2: The procyclicality effects of risk-sensitive regulatory capital

Figure 2.3: Leverage adjustment in upturn and downturn

Figure 3.1: The Static Trade-Off Theory of capital structure

Figure 3.2: Agency costs depending on funding sources

Figure 4.1: Growth of assets and leverage

| 15 →

Details

Pages
120
Year
2018
ISBN (PDF)
9783631753033
ISBN (ePUB)
9783631753040
ISBN (MOBI)
9783631753057
ISBN (Softcover)
9783631746219
DOI
10.3726/b13845
Language
English
Publication date
2019 (April)
Keywords
Basel 2 Fair Value Accounting Risk-weight of assets Asset growth Debt Equity
Published
Berlin, Bern, Bruxelles, New York, Oxford, Warszawa, Wien, 2018, 120 p. 6 b/w ill., 17 b/w tab.

Biographical notes

Ciydem Catak (Author)

Çiydem Çatak received her PhD in Accounting and Finance from Marmara University (Turkey). Her research interests are corporate finance, banking, and financial economics.

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122 pages