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Bank leverage and profitability: Evidence from a sample of international banks

Andrea Beltratti and Giovanna Paladino ()

Review of Financial Economics, 2015, vol. 27, issue C, 46-57

Abstract: We examine the relationship between leverage and residual income for a sample of international banks using an unbalanced panel over the period 2005–2011. Our GMM-based econometric model considers both bank-level and country-level variables to control for several other factors aside from equity capital and allows for endogeneity and unobservable heterogeneity. We document a significant positive non-monotonic link between the capital ratio and residual income for the international banking industry. These results are robust to a number of different model specifications.

Keywords: Implied cost of capital; Residual income capital structure; Dynamic system GMM; Banking industry (search for similar items in EconPapers)
Date: 2015
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DOI: 10.1016/j.rfe.2015.08.002

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