Bank Capital and Value in the Cross-Section
Top Cited Papers
- 6 April 2010
- journal article
- Published by Oxford University Press (OUP) in The Review of Financial Studies
- Vol. 24 (4) , 1019-1067
- https://doi.org/10.1093/rfs/hhq022
Abstract
We develop a dynamic model of bank capital structure in an acquisitions context which predicts: (i) total bank value and the bank’s equity capital are positively correlated in the cross-section, and (ii) the various components of bank value are also positively cross-sectionally related to bank capital. Our empirical tests provide strong support for these predictions. The results are robust to a variety of alternative explanations—growth prospects, desire to acquire toe-hold positions, desire of capital-starved acquirers to buy capital-rich targets, market timing, pecking order, the effect of banks with binding capital requirements, Too Big To Fail, target profitability, risk, and mechanical effects.Keywords
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