Modeling Structural and Temporal Variation in the Market's Valuation of Banking Firms

Edward Kane and Haluk Unal

Journal of Finance, 1990, vol. 45, issue 1, 113-36

Abstract: Hidden capital exists whenever the accounting measure of a firm's net worth diverges from its economic value. Such unbooked capital has on-balance-sheet and off-balance-sheet sources. This paper develops a model to estimate both forms of hidden capital and to test hypotheses about their determinants. In effect, the analysis expands the two-index model by endogenizing the market and interest-rate sensitivities of any stock and decomposing each sensitivity into on-balance-sheet and off-balance-sheet elements. For a sample of banks during 1975-85, the model finds considerable variation in both forms of hidden capital. Copyright 1990 by American Finance Association.

Date: 1990
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Working Paper: Modeling Structural and Temporal Variation in the Market's Valuation of Banking Firms (1988)
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