The Determinants of Bank Capital Structure

By Reint Gropp, Florian Heider. Social Science Research Network, 2010

432 citations recorded by the source corpus.

The paper shows that mispriced deposit insurance and capital regulation were of second-order importance in determining the capital structure of large U.S. and European banks during 1991 to 2004. Instead, standard cross-sectional determinants of non-financial firms' leverage carry over to banks, except for banks whose capital ratio is close to the regulatory minimum. Consistent with a reduced role of deposit insurance, we document a shift in banks' liability structure away from deposits towards non-deposit liabilities. We find that unobserved time-invariant bank fixed-effects are ultimately the most important determinant of banks' capital structures and that banks' leverage converges to bank specific, time-invariant targets. Copyright 2010, Oxford University Press.

Subfields: Accounting, Finance

View Paper: https://www.semanticscholar.org/paper/cfa8ec4b900e6724d5dda926eaece6a300d58c61

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Citations in the corpus

Leverage across firms, banks, and countries ☆ (2012, methodology): “Flannery and Rangan (2008) and Gropp and Heider (2010) find large variation in banks’ capital ratios and investigate whether capital requirements are a first-order determinant of banks’ capital structure.”
Taxes and Bank Capital Structure (2016, neutral): “Previous work on bank capital structure primarily focuses on the bank-specific determinants of (optimal) bank capital structure (Gropp and Heider (2010), Flannery and Rangan (2008), Berger et al. (2008)) or on how banks make capital structure adjustments (De Jonghe and Öztekin (2013), Memmel and…”
Efficiency and Risk in European Banking (2011, neutral): “Regulators can also force banks to increase the amount of capital commensurably with the amount of risk taken (Gropp and Heider, 2010).”
Macroprudential capital requirements and systemic risk (2012, neutral): “…the fixed point procedure will still work.5 4Some studies find that capital and risk-taking are negatively correlated (Jacques and Nigro (1997), Calomiris and Wilson (2004), Gropp and Heider (2010)) while others found a positive or no relation (Ronald and Dahl (1992), Flannery and Rangan (2008)).”
The causality direction of the corporate social responsibility – Corporate financial performance Nexus: Application of Panel Vector Autoregression approach (2019, background): “For instance, it was suggested by Stanwick and Stanwick (1998), King and Lenox (2002) and Al-Tuwaijri et al. (2004) that enhanced environmental performance also improves overall financial performance.”
Deposits and Bank Capital Structure (2015, neutral): “Gropp and Heider (2010) find that the determinants of bank capital structure are similar to those for non-financial firms.”
Why bank capital matters for monetary policy (2016, neutral): “Second, we include bank-level fixed effects in the regression (ie by allowing to the constant in the long-term relationship to be different across banks) based on the idea that firms adjust their equity to unobserved bank-specific targets (Lemmon et al, 2008; Gropp and Heider, 2010; Öztekin and Flan”
Tax Biases to Debt Finance: Assessing the Problem, Finding Solutions (2011, background): “Evidence by Flannery and Rangan (2008), Berger and others (2008), and Gropp and Heider (2010) suggests, however, that bank capital structures are determined by the same factors as those for non-financial firms and that specific factors for banks are only of secondary importance.”