Procyclicality of U.S. Bank Leverage

Christian Laux and Thomas Rauter

Journal of Accounting Research, 2017, vol. 55, issue 2, 237-273

Abstract: In light of the current debate about the link between accounting and financial stability, we investigate the determinants of procyclical book leverage for U.S. commercial and savings banks. We find that total asset growth and GDP growth are both positively related to book leverage growth. Our evidence is not consistent with the notion that fair value accounting contributes to procyclical leverage or that historical cost accounting reduces procyclicality. Overall, the business model of banks is more important for procyclical leverage than accounting or regulatory risk weights.

Date: 2017
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Persistent link: https://EconPapers.repec.org/RePEc:bla:joares:v:55:y:2017:i:2:p:237-273

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Journal of Accounting Research is currently edited by Philip G. Berger, Luzi Hail, Christian Leuz, Haresh Sapra, Douglas J. Skinner, Rodrigo Verdi and Regina Wittenberg Moerman

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