Economics at your fingertips  

Impact of Financial Sector Opacity on the Capital Structure Choice of Asian Banks

Khalil Ullah Mohammad and Shin-Ichi Nishiyama
Additional contact information
Khalil Ullah Mohammad: Assistant Professor at Bahria University Islamabad Pakistan.

Asian Economic and Financial Review, 2021, vol. 11, issue 3, 219-235

Abstract: This study investigates the role of market imperfections on the optimal capital structure choice of value maximizing banks, by investigating the impact of information asymmetry on bank liabilities. Random effects estimation (GLS) is used to test the effect of market imperfections on the capital structure of banks by employing 7 years of unbalanced panel data from the largest 15 countries of Asia based on GDP. The study finds evidence of specific individual characteristics impacting the capital structure of Asian banks. However, banking sector market imperfections are also found to play a major role in the capital structure choice of banks. In the presence of a high level of information asymmetry between the bank and the depositor, the bank retains a lower than optimal capital ratio. Transparent banks may be successful in achieving the optimal leverage, consequently lowering their capital cost. Evidence suggests a need to reduce banking sector opacity regarding their risk exposures. To ensure banking sector stability, stronger capital requirements need to be imposed on banks in those Asian countries where information asymmetry is high. The limitations of the study include limited data and the choice of information asymmetry proxies. Future research can address this limitation by employing additional proxies for information asymmetry and increasing the number of countries.

Keywords: Capital structure theories; Information asymmetry; Bank capital; Central bank regulation; Bank opacity; Leverage; Capital structure. (search for similar items in EconPapers)
JEL-codes: E58 G21 G28 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link) (application/pdf) (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link:

Access Statistics for this article

Asian Economic and Financial Review is currently edited by Dr. Qazi Muhammad Adnan Hye

More articles in Asian Economic and Financial Review from Asian Economic and Social Society 2637 E Atlantic Blvd #43110 Pompano Beach, FL 33062, USA.
Bibliographic data for series maintained by Chan Hoi Yan ().

Page updated 2021-06-02
Handle: RePEc:asi:aeafrj:2021:p:219-235