Excess control rights, bank capital structure adjustments, and lending

Laetitia Lepetit, Nadia Saghi-Zedek and Amine Tarazi

Journal of Financial Economics, 2015, vol. 115, issue 3, 574-591

Abstract: We investigate whether excess control rights of ultimate owners in pyramids affect banks׳ capital ratio adjustments. When control and cash flow rights are identical, to boost capital ratios banks issue equity without cutting lending. However, when control rights exceed cash flow rights, instead of issuing equity, banks downsize by reducing lending. Such a finding is mostly prevalent in countries with weak shareholder protection or for family-controlled banks. Other factors also explain the extent to which such banks reduce lending. Our findings contribute to the capital structure adjustment literature and have critical policy implications for the implementation of Basel III and the debate on capital requirements and bank lending.

Keywords: Dynamic capital structure; Bank lending; Pyramids; Excess control rights; European banking (search for similar items in EconPapers)
JEL-codes: G21 G28 G32 (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (43)

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Related works:
Working Paper: Excess control rights, bank capital structure adjustment and lending (2015)
Working Paper: Excess control rights, bank capital structure adjustments, and lending (2015)
Working Paper: Excess control rights, bank capital structure adjustment and lending (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:115:y:2015:i:3:p:574-591

DOI: 10.1016/j.jfineco.2014.10.004

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